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Why closing the Strait of Hormuz is a double-edged sword for Iran?

by June 23, 2025
by June 23, 2025

The Strait of Hormuz, through which around a fifth of the global oil supply is transported every day, remains at the centre of attention on Monday. 

Oil and LNG markets face significantly increased supply risks following the weekend bombing of Iranian nuclear facilities by the US.

Now, the critical question is: how will Iran respond?

A significant risk to the oil market is the potential for Iran to disrupt shipping traffic in the Strait of Hormuz.

Approximately 20% of the world’s LNG trade also passes through this strait.

“We could also see Iran disrupt shipments at other choke points through its proxies. Recently, we’ve seen the Houthis targeting shipments through the Bab al-Mandeb Strait,” Warren Patterson, head of commodities strategy at ING Group, said.

“An effective blocking of the Hormuz would lead to a dramatic shift in the outlook for oil, pushing the market into deep deficit,” he said, adding that spare production capacity of OPEC+ would not be sufficient in that scenario. 

The spare output capacity of the Organization of the Petroleum Exporting Countries and allies also sits in the Persian Gulf. 

“So, these flows would also have to go through the Strait of Hormuz,” Patterson added. 

However, Commerzbank AG believes that it would also impact Iran if they shut down the Strait of Hormuz. 

Iran’s dilemma

The oil flowing through the Strait of Hormuz could not be transported to the world market via other routes such as pipelines in the event of a blockade by Iran. 

In such a scenario, the market would tighten considerably. 

“A higher risk premium on the oil price is therefore justified, even if the probability of the Strait of Hormuz being closed is very low,” Carsten Fritsch, commodity analyst at Commerzbank, said. 

However, this would harm Iran itself considerably, as it would also no longer be able to export oil and would also offend China, its most important customer.

“This is because China obtains the majority of its oil imports from countries in the Persian Gulf and would therefore be particularly affected by a blockade of the strait,” Fritsch said. 

Should Iran no longer be able to export its oil, the reluctance threshold for a blockade would sink.

This will likely also be true if the Tehran regime is on the verge of losing power.

Will Iran really shut down the strait?

Reports indicate that while the Iranian parliament supports the closure of the Strait of Hormuz, the ultimate decision rests with the country’s national security council.

“Given the potential impact on oil flows and prices from such action, there would likely be a swift response from the US and others,” ING’s Patterson said. 

Given that over 80% of oil transiting the Strait of Hormuz is destined for Asia, the region would experience a greater impact than the US.

Source: The Print

“Therefore, Iran would want to be careful in upsetting the likes of China by disrupting oil flows,” Patterson noted. 

This morning’s price action indicates the market, at least for now, does not anticipate a blockage of flows through Hormuz, according to Patterson. 

Brent crude, after a brief spike earlier in the trading session, has fallen back below $80 per barrel.

Impact on prices

Geopolitical risks have clearly risen significantly, though a successful blockade of the Strait of Hormuz is unlikely, according to ING. 

However, ongoing Israeli strikes on Iran present clear supply risks for Iranian oil.

Therefore, ING has revised its oil forecasts for the remainder of the year. 

ING had previously forecasted that Brent would average $62 per barrel in the third quarter. “We’ve increased this to $70/bbl to reflect a larger risk premium,” Patterson said. 

Meanwhile, ING increased its fourth-quarter forecast from $59 a barrel to $64 per barrel.

Patterson said:

Any supply disruptions would require further price revisions. It follows that, in the absence of supply disruptions, we are likely to see the risk premium fade over time.

The post Why closing the Strait of Hormuz is a double-edged sword for Iran? appeared first on Invezz

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