The Strait of Hormuz is a key shipping route between Oman and Iran, connecting the Persian Gulf with the Sea of Oman and the Arabian Sea. The US Energy Information Administration describes it as "the world's most important oil shipping route".
At its narrowest point, the strait is only 33 kilometers wide, which often makes it congested and dangerous. Huge quantities of crude oil produced by OPEC countries such as Saudi Arabia, the UAE, Kuwait and Iraq pass through the Strait of Hormuz to reach other parts of the world.
According to data from the consulting company Vortexa, an average of 20 million barrels of crude oil, condensate and other fuels pass through the strait per day. Qatar, one of the world's largest producers of liquefied natural gas, also relies heavily on traffic through the Strait of Hormuz for its exports. They say the disruptions are affecting shipping in the region.
There is no sign of an end to the conflict between Israel, the United States and Iran, and markets are volatile. Any potential blockade of the Strait of Hormuz and the oil that passes through it could cause a sharp jump in crude oil prices. This would affect energy exporters, especially in Asia. At the same time, rates for tankers carrying crude and refined petroleum products from the region have soared in recent days.
The cost of transporting fuel from the Middle East to East Asia rose by almost 20% in the first three days of the conflict, Bloomberg reported. Meanwhile, transmission rates to East Africa have jumped more than 40%.
Who would be most affected by a supply disruption?
The U.S. Energy Information Administration estimates that 82 percent of the crude oil and other fuels that pass through the Strait of Hormuz are destined for consumers in Asia.
The main destinations for the oil are China, India, Japan and South Korea. These four countries together receive about 70 percent of the crude oil and condensate that pass through the key strait. Their markets would be most severely affected in the event of a supply disruption.
How would a closure of the strait affect Iran and its neighbors?
If Iran were to decide to close the Strait of Hormuz, it could potentially provoke another military strike by the United States. The US Fifth Fleet, based in nearby Bahrain, is tasked with protecting commercial shipping in the region.
Any action by Iran that could disrupt oil flows through the strait would likely also undermine Tehran's relations with Gulf Arab states such as Saudi Arabia and the United Arab Emirates. Iran has worked hard to improve relations with these states in recent years. They have criticized Israel for attacking Iran, but if Tehran's actions disrupt their oil exports, that position could easily change.
In addition, Iran itself relies heavily on the Strait of Hormuz to export its own oil. This would make its potential closure counterproductive, experts say.
"Iran's economy relies heavily on the unimpeded passage of goods and ships through the strait, as the country's oil exports are entirely by sea," JP Morgan analysts Natasha Kaneva, Pratik Kedia and Lyuba Savinova told "Reuters". According to them, if Iran were to stop traffic through the Strait of Hormuz, it would create problems between Tehran and its sole buyer of oil, China.
Are there alternatives to the Strait of Hormuz?
In recent years, Gulf Arab states have been looking for alternative routes to transport their oil. Saudi Arabia and the UAE have built infrastructure that allows them to export some of their products via other routes.
Saudi Arabia, for example, operates the "East-West" gas pipeline with a capacity of five million barrels per day, and the UAE has a pipeline connecting its onshore oil fields to the export terminal in Fujairah, which is located on the Gulf of Oman.
According to estimates by the Energy Information Administration, about 2.6 million barrels of crude oil per day could be used to bypass the Strait of Hormuz in the event of its blockage.
Author: Srinavas Mazumdaru