The last time the Strait of Hormuz came agonisingly close to a complete closure was between 1980 and 1988 when tankers became the targets of missiles during the Iran–Iraq war. Interestingly, it was also dubbed the ‘Tanker War’ then.
At the peak of the armed engagement between the two Middle Eastern neighbours, the Strait of Hormuz remained navigable and was never shut. Shipping continued as usual, albeit with caution.
The other occasions in the recent past when the Strait of Hormuz was the centre of geopolitical turmoil in the region are listed below:
Despite repeated threats and rising tensions—especially during 2011–12 and 2018–19—the Strait of Hormuz has never been fully closed. Iran has frequently hinted at closures as a strategic warning rather than actually carrying them out.
The pattern is clear—rhetoric spikes during geopolitical standoffs or after fresh rounds of sanctions, yet the waterway itself stays navigable due to its critical importance to all parties involved.
In light of the armed conflict between Israel and Iran, and the subsequent participation of the US, will the situation with the Strait of Hormuz be any different? In this piece, we discuss the possible outcomes in detail.
What has happened so far?
- On 22 June 2025, the US military conducted its first-ever direct strike on Iranian soil, hitting key nuclear facilities at Fordow, Natanz and Isfahan.
- President Trump warned Iran to “make peace” or face further attacks.
- Iranian leaders have refused to comply and threatened retaliatory strikes on US bases and regional targets.
- Iran’s parliament voted to close the Strait of Hormuz, pending final approval by its top security body.
Why does Iran want to block the Strait of Hormuz?
Iran’s threat to close the Strait of Hormuz is a desperate bargaining chip rather than a genuine strategic plan. Tehran knows that choking this vital shipping route will cripple its own economy (as it depends heavily on Hormuz for exports and imports) and alienate even its most sympathetic partners like China, Oman and Qatar.
Iran is on the offensive to gain leverage in the face of the US military pressure. Closing the Strait would provoke a swift, overwhelming international response, making this threat more symbolic than sustainable.
How are shipowners responding to this blockade?
Shipowners are adopting a cautious, proactive approach with some agreeing to transit through the Strait only under strict safety protocols, including timing passages during daylight hours. Meanwhile, owners and charterers are closely coordinating with insurers and stakeholders as shipowners prepare to adjust their plans if hostilities escalate or underwriters issue new guidance. For shipowners, the safety of the crew and vessels in an unpredictable environment is top priority.
A popular sentiment shared widely among industry watchers and geopolitical watchdogs is that Iran could find it challenging to proceed with the closure despite the backing of the parliament. However, let us examine the possible consequences if Iran were to close the Strait of Hormuz.
Immediate impact and market shock
Brent crude could surge within minutes of Iran’s announcement of the closure of the Strait of Hormuz. Even though forecasting crude oil prices in such a scenario is fraught with danger, we expect oil prices to surpass $100 while LNG spot prices worldwide could flirt with $25-30/MMBtu. A spike in energy prices could cause chaos, hitting Asian economies like China, India, Japan and South Korea the hardest. Amid rising energy prices, countries would be forced to tap into their strategic reserves and reassess their stocks for a prolonged shock.
Saudi Arabia and the UAE could bypass the Strait using the East–West (Saudi Arabia) and Habshan–Fujairah (UAE) pipelines whereas Qatar could lean on its relations with Turkey and Europe for diplomatic solutions. Qatar doesn’t have many options but to wait for the Strait of Hormuz to open. Meanwhile, China could press Iran to reopen the Strait as it is the top buyer of Gulf crude and LNG whereas Russia could seize the opportunity and possibly sell more discounted crude and gas to Europe/Asia.
Figure 1: Alternative routes to bypass the Strait of Hormuz
A political resolution would be the only way to defuse the crisis; for example, a focused summit in Geneva or Doha to bring peace to the region which could result in a compromise. Iran might agree to a partial reopening under monitoring in exchange of partial sanctions relief or diplomatic carrots. Prolonged closure might harm Iran the most as almost 65% of its revenues depend on oil exports, and all of this oil flows through the Strait. With the closure, internal dissent could rise when government subsidies funded by oil exports dry up.
While there will be impact on bourses, financial systems, geopolitical realignments and military responses; , they are outside the scope of our analysis.
Drewry’s view on the impact on global shipping
VLCCs and LNGCs waiting to transit would hold position and insurers would invoke war-risk premiums, taking shipping rates sky-high. Several vessels would be trapped in the Persian Gulf, further fuelling a supply crunch elsewhere and giving a possible lease of life to the Steam Turbine LNG vessels that were lost in oblivion. At least a few of these vessels would be picked up at handsome rates by panicked charterers
Figure 2: Crude oil exports from Persian Gulf
The freight market has witnessed a significant upswing since the military escalation in the region.
Figure 3: AG to East and Far East freight rates
Between 13 June 2025 and 20 June 2025, freight rates for VLCCs on AG–East surged nearly 70% and AG-Far East LR rates went up 45%. We expect freight rates to increase further to accommodate the spiralling war-risk premiums.
Looking at the markets from a fundamental standpoint, as long as the Strait of Hormuz is open, there is little reason for actual disruption to oil or LNG supply, and we believe that tanker demand will remain unaltered in the near future.
However, the escalating military conflict is a strong reason for shipowners’ reluctance to move their assets in the Persian Gulf. Even with possible assurances from Iran, vessels remain susceptible to damage from stray projectiles in the war zone. Vessels in the region could also become effectively trapped, further shrinking local tonnage availability. The result could be a spike in premiums and rates for owners still willing to navigate the Strait.
In the medium term, there could be a realignment of trades. A chronically volatile and persistent geopolitical situation could encourage buyers to source crude from outside the Persian Gulf. Longer trade routes could emerge, supporting tonne-mile demand, aiding tanker earnings. As we write, AIS data suggests vessel traffic is still moving through Hormuz. However, the heightened patrolling by the Iranian Navy in the Persian Gulf isn’t very comforting for the shipowners. If these threats persist for long, we could see a pattern similar to that in the Red Sea, where shipowners gradually choose to bypass dangerous corridors altogether, amplifying rate volatility across the sector.
In the longer term, the ongoing risks may drive lasting changes in supply chains. Stakeholders might increase investments in Red Sea ports and conceive alternative pipeline routes through Iraq or Syria. An unprecedented full-scale closure of the Strait of Hormuz is inching closer to reality, and prolonged disruption would eventually force buyers to permanently reduce their reliance on Gulf-sourced energy commodities—mainly crude oil, LNG and LPG. Replacing the entire output that usually passes through Hormuz is impractical, so a permanent closure is still a remote, though increasingly discussed, possibility.
While the prospect of a full-scale closure of the Strait of Hormuz remains on tenterhooks, the mounting tensions and posturing underline its enduring strategic fragility. Every armed conflict reminds shipowners, charterers and energy buyers how much of the world’s energy supply depends on this narrow waterway. Even if a diplomatic resolution emerges in the short term, the market cannot ignore the long-term implications of continued instability. This crisis may hasten shifts in trade routes, investments in alternative logistics and diversification of energy supply. Whether or not a closure materialises, these tensions have already redrawn perceptions of risk in global shipping. That alone is enough to continue to shape the future of trade through the Strait of Hormuz.
Related : Iran’s top security body to decide on Hormuz closure
Source :Drewry Maritime
