How the closure of Strait of Hormuz could impact markets

Yahoo

5 hours ago

Commodity markets were volatile on Monday as the world waited to see whether Iran would carry out its threat to shut down the Hormuz Strait.
Iran's parliament voted at the weekend to shut down the vital Hormuz shipping channel in retaliation for US president Donald Trump's attack on the country's nuclear facilities.
The final decision to shut the pathway rests with Iran's supreme national security council, following the non-binding vote. If the closure happens, it would be unprecedented and likely have profound consequences for the global economy and energy supply.
Here's everything you need to know:
Around a fifth of the world's oil consumption flows through the Strait of Hormuz. It is the entry and exit point to the Persian Gulf and a cornerstone for the energy market, with around 30% of the world's liquified natural gas sourced there, too.
In May, approximately 17.8 million to 20.8 million barrels of crude, condensate, and fuels flowed through the strait daily, according to data from analytics firm Vortexa.
Read more: LIVE: Wall Street wavers, European stocks fall as investors await Iran's response to US strikes
Saudi Arabia uses it to export around 6 million barrels of crude oil per day, more than any neighbouring country.
Meanwhile, Iran exports about 1.7 million barrels per day, according to the International Energy Agency.
Iran exported $67bn (£49.8bn) worth of oil in the financial year ending March 2025 — its highest oil revenue in the past decade — according to estimates by the Central Bank of Iran.
The majority of exports are sent to Asia. China alone is estimated to buy around 90% of the oil that Iran exports to the global market.
However, the economic inflationary shocks of any closure could be felt globally, with increased energy prices rippling into the real economy.
If the Strait is closed by Iran's national security council, the country will have to decide how to close the stretch of water.
To the north of the passage is Iran, and to the south is the UAE and Oman. It's about 33km wide at its narrowest point and 50km at its entrance and exit. UN rules allow countries to exercise control up to 12 nautical miles (13.8 miles) from their coastline.
So far, Israel's military and US attacks have been focused on Iran's nuclear programme and other targets, instead of its naval assets.
According to reports and analysis, Iran's navy could move to lay out a number of mines in the sea via fast attack boats and submarines to protect the closed Strait on the country's southern border and stop ships passing into the Persian Gulf.
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While this might be the most effective way to block the Strait, the US and other countries could then wrest control back through military means to re-establish the passage of ships.
For markets, the long-run impact of closing this shipping route is largely unknown.
Oil prices ticked between gains and losses on Monday reflecting anxiety, but many traders are still in "wait and see" mode as Iran weighs its options.
'The markets are not yet reacting with any degree of panic to the US airstrike on Iran's nuclear facilities as they await to see how Tehran responds," said Russ Mould, investment director at AJ Bell.
'The promised two-week hiatus as the US weighed its decision didn't materialise as the Trump administration acted on Saturday. After briefly spiking above $80 per barrel when the market opened in Asia on Monday, Brent pared those gains to trade modestly higher."
Analysts at Goldman Sachs predicted that disruptions could push the price of Brent crude over $100 per barrel — the highest point since August 2022. This would push up transport costs, lift inflation and hurt growth across Western economies.
And when oil prices move, so do the stock prices of oil majors. FTSE 100 (^FTSE) stalwarts BP (BP.L) and Shell (SHEL.L) are likely to be in the crosshairs for any impact.
On Monday, oil majors' share prices ticked higher, with BP more than 1.4% in the green by the afternoon and Shell seeing a 0.8% uplift.
Shipping operators and container companies are keeping a close eye on any movement.
"We continue to monitor the situation very closely, especially considering the US involvement in the conflict," Maersk (MAERSK-B.CO) wrote on its website.
"At the moment, sailing through the Strait of Hormuz continues, but we are ready to re-evaluate this based on information available. Equally, we will continuously monitor the security risk to our specific vessels in the region and are ready to take operational actions as needed," it added.
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Strait of Hormuz saber-rattling ramps up following US attack. Whether the key waterway will close is less clear