The World's Most Dangerous Chokepoint: The Straight of Hormuz
How a Strait of Hormuz Closure Could Ignite Global Inflation
Every barrel of oil that passes through the Strait of Hormuz carries with it more than just hydrocarbons — it carries the stability of the global economy. At just 33 kilometres wide at its narrowest point, this sliver of water between Iran and Oman is the single most important oil transit chokepoint in the world. In 2024, approximately 21 million barrels per day — roughly 21% of global petroleum liquids consumption — flowed through this passage. A deliberate or sustained closure of the Strait would not merely be a Middle East problem. It would be an inflation problem for every consumer, every central bank, and every portfolio manager on the planet. 21 million barrels of oil transit the Strait of Hormuz daily — more than one-fifth of all global petroleum consumption. Why the Strait of Hormuz Is Irreplaceable The Persian Gulf is landlocked on three sides, and the Strait of Hormuz is the only maritime exit. The world's largest oil exporters — Saudi Arabia, the UAE, Kuwait, Iraq, and Iran itself — are critically dependent on this passage. Qatar, the world's leading exporter of liquefied natural gas (LNG), also routes virtually all of its shipments through the Strait. Alternative pipeline infrastructure does exist but is wholly inadequate to compensate for a full closure. Saudi Arabia's East-West Pipeline (Petroline) has a capacity of around 5 million barrels per day — less than a quarter of normal Hormuz throughput. The UAE's Abu Dhabi Crude Oil Pipeline can handle approximately 1.5 million barrels per day. Even in a best-case scenario where all alternative routes are immediately activated, the world would face a supply shortfall of 14 million barrels per day or more. That is a number with no modern peacetime precedent. The Inflationary Transmission Mechanism Oil is not merely a fuel — it is an input into virtually everything modern economies produce. Petrochemicals underpin plastics, fertilisers, pharmaceuticals, and synthetic textiles. Diesel powers the trucking, shipping, and agricultural machinery that keeps global supply chains moving. Aviation fuel runs global freight networks. A sharp and sustained rise in oil prices therefore propagates across the entire consumer price index with a speed and breadth that most other commodity shocks cannot match. The transmission channels are well-established from prior episodes. First comes the direct energy component — petrol at the pump, electricity generation costs, and household gas bills surge immediately. Next come second-round effects: transport and logistics costs rise sharply, feeding into the cost of virtually every good sold at retail. Then come third-round effects: businesses facing higher input costs pass them on through price increases, and workers — seeing their real wages eroded — demand higher nominal wages, embedding inflation in labour markets. Central banks, caught between surging inflation and a weakening growth outlook, face the classic stagflationary dilemma. Raising rates aggressively to fight inflation risks tipping already-stressed economies into recession. Tolerating elevated inflation risks de-anchoring longer-term inflation expectations, making the eventual correction even more painful. The last time oil markets faced a comparable supply shock — the 1973 Arab oil embargo — global CPI inflation peaked above 12% across developed economies within 18 months. Historical Precedents: What Prior Shocks Tell Us The 1973 Arab oil embargo provides the starkest historical benchmark. An embargo affecting roughly 5 million barrels per day — less than a quarter of what the Strait now carries — caused oil prices to quadruple within months and drove US CPI above 12% within two years. The 1979 Iranian Revolution, which temporarily removed around 3.5 million barrels per day from global markets, pushed Brent crude from USD 15 to over USD 35 per barrel and triggered double-digit inflation across most of the OECD. The 1990 Gulf War demonstrated how even the threat of Strait disruption could shock markets — crude surged from around USD 17 to over USD 40 per barrel in the months following Iraq's invasion of Kuwait, despite the Strait itself remaining open. In 2012, intensifying sanctions on Iran and explicit Iranian threats to close the Strait pushed oil prices above USD 125 per barrel on Brent crude, briefly, before diplomatic de-escalation contained the move. In each of these episodes, the actual disruption was far smaller than a full Strait closure would represent. The inflationary consequences were nevertheless severe and protracted. Scenario Analysis: 10, 20, and 40 Days of Closure The duration of any closure is the critical variable. Strategic petroleum reserves — the US holds approximately 350 million barrels in its Strategic Petroleum Reserve, and IEA members collectively hold over 1.5 billion barrels of emergency stocks — provide a buffer, but one that becomes rapidly exhausted against a shortfall of 14+ million barrels per day. The table below outlines…
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