Hormuz's latest closure: A widening shock to global energy markets

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Entering its eighth week, the US-Israel-Iran conflict has turned the Strait of Hormuz into a persistent geopolitical fault line – opened, closed, and reopened… within days.

The latest U-turn – Iran saying it is shutting the waterway just a day after it was reopened on April 17 – came in response to the US President Donald Trump's remarks that the US blockade would "remain in full force" until a permanent peace deal with Tehran was reached. And the lack of clarity on the second round of diplomatic talks between the two sides in Pakistan further underscores just how precariously the regional situation is balanced.

Such an on-and-off dynamic is fraying nerves across the global markets and making it increasingly plausible that a regional standoff could metastasize into a global economic calamity.

The strategic weight of the Gulf region explains why. In terms of fuel reserves, the region is second to none, possessing roughly 60% of the world's known oil reserves and 40% of natural gas reserves. As for the Strait of Hormuz, the only maritime chokepoint connecting the region to the open ocean, it channels more than a quarter of global seaborne oil and roughly a fifth of liquefied natural gas (LNG) shipments. Few arteries of global commerce are as vital – or as vulnerable.

With tensions continuing to flare up, its impact on the global energy industry is increasingly pronounced. Oil markets, hypersensitive to geopolitical signals, have been on a roller coaster ride. By April 20, Brent crude prices have rebounded more than 5% toward $96 per barrel after briefly falling toward $90 a few days earlier. With the prospect of a prolonged blockade now in view, the risk of a further escalation in oil prices is mounting.

More revealing is what lies beneath the headline prices. Supertanker costs have climbed to their highest on record. As of early March, the benchmark freight rate for the Very Large Crude Carriers (VLCCs) from the Middle East to Asia soared to an all-time high of approximately $423,736 per day, representing a more than 94% single-day increase. War-risk insurance premiums have risen in tandem, while shipowners demand compensation for the heightened danger of transiting through contested waters. The result is a sharp increase in delivered energy costs, irrespective of the benchmark oil prices.

Notably, with each cycle of "reopening and re-closure," such pressures will only jolt the world's energy sector even harder. Longer rerouting distances, elevated insurance premiums, and tighter shipping capacity have already fed, and will continue to feed, into global supply chains and push up logistics costs across industries as long as the volatility drags on.

As energy prices rise, the inflationary pressure will quickly transmit to manufacturing, transportation, and consumer markets – eroding the very foundation of global economic growth, as is already becoming evident.

Above all, Asian countries are standing at the sharp end of the shockwaves, with approximately 90% of the crude oil and LNG passing through the Strait of Hormuz destined for Asian markets.

Across the region, the strain is already being felt in everyday life. The Philippines, for example, has declared a national energy emergency in light of the conflict and "the resulting imminent danger posed upon the availability and stability of the country's energy supply." In India, a shortage of gas has seen its ceramics industry temporarily shut down, leaving hundreds and thousands of people employed in the trade in limbo. From Pakistan to Sri Lanka, governments have ordered employees to work from home or cut their working week in order to conserve their supplies.

Beyond Asia, the energy shock is already feeding directly into transportation and industrial activity.

Last week, the International Energy Agency (IEA) has warned that Europe may have "only six weeks of jet fuel left" if flows through the Strait do not resume, raising the prospect of widespread flight disruptions.

In Africa, oil producing nations like Angola, Mozambique, and Nigeria might be increasingly viewed by European and Asian buyers as lower-risk alternatives to the current disrupted supplies from the Middle East. Yet the bigger picture is that, since most African nations are net importers of refined oil, surging oil prices are creating swift and severe pain for ordinary Africans.

Similarly, in Latin America, while oil producing countries like Brazil might stand to benefit from increased exports, the disadvantage seems to become acute for countries that are not oil rich as they could see costs go up for consumers.

And the story does not end with disruption. The recurring instability of the Strait may, paradoxically, accelerate the global energy transition. As more countries are waking up to the fact that energy acts as a central instrument of geopolitical competition, renewable energy and storage will increasingly be viewed not merely as climate policies but as pillars for long-term national security.

Ultimately, whether the relevant parties and the international community at large can crack the code of this deeply volatile situation in the Strait of Hormuz will require more than tactical de-escalation, but a dual-track approach – immediate efforts to stabilize the fickle situation on the ground, coupled with a longer-term commitment to building a more resilient global energy architecture.

As the Strait of Hormuz faces renewed closure with deepening impacts on the global energy supply, the stakes of inaction are becoming increasingly immediate and unmistakably global.

The author Liu Mengling is a Beijing-based analyst of political and international relations.

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