Why is the Strait of Hormuz so important?

ormuz

(Unsplash, 2019)

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: John Letzing, Digital Editor, Knowledge Networks and Analysis, World Economic Forum


When Iran’s Islamic Revolutionary Guard Corps seized a British-flagged ship in the Strait of Hormuz on July 20, it further escalated an ugly geopolitical standoff – and underlined the crucial importance of this passageway to the Persian Gulf.

Iran’s move came after the British Navy seized an Iranian ship near Gibraltar, on the grounds it may have been violating an embargo on oil sales to Syria.

The naval tit-for-tat is a result of a broader deterioration of relations between the United States and the United Kingdom on one side, and Iran on the other. In a recent Twitter post, Iran’s foreign minister suggested the UK’s seizure of the Iranian ship was done at the behest of the US, and stated that Iran doesn’t seek confrontation – but will “protect our waters“.

The Strait of Hormuz is a logical flashpoint for this geo-economic gamesmanship, due to its location and strategic value for so much of the world.

The hook-shaped waterway between Iran and Oman flows from the Persian Gulf to the Gulf of Oman – and beyond that to the Indian Ocean – and is considered the world’s most important oil transit chokepoint. The 20.3 million barrels of oil per day shipped through the strait during 2017 accounted for nearly a third of global maritime oil trade that year, and volumes in 2018 accounted for more than a fifth of global consumption, according to the US Energy Information Administration. Also in 2018, 1.4 million barrels per day specifically transited through the strait on their way to the US, in addition to more than a quarter of all global trade in liquefied natural gas.

A single container ship and its cargo making its way through the strait can easily be worth well in excess of $100 million worth of cargo.

There aren’t many alternatives. Just two pipelines circumvent the strait; the Habshan-Fujairah pipeline in the United Arab Emirates can transmit about 1.5 million barrels per day, while Saudi Arabia’s Petroline pipeline can transmit up to 5 million barrels per day (this year, Saudi Arabia said Houthi fighters had attacked Petroline, temporarily shutting it down).

That leaves the bulk of the oil produced in the region to pass through a waterway where merchant shipping is in theory is protected by Part III of the UN Convention on the Law of the Sea. However, while Iran has signed this treaty, it has not ratified it.

For more context here’s a set of links to deeper reading.

  • Trump could have an easy way to defuse the situation: restore oil waivers he initially granted to countries that depend on Iranian imports but then revoked. (Foreign Policy)
  • Iran has retained “escalation dominance” and will probably take things further; the worst-case scenario is mines in the Strait of Hormuz. (Royal United Services Institute)
  • Tehran’s actions in the Gulf are just another means of diplomatic negotiation now that Iran’s nuclear deal is on life support. (Politico)
  • A former US Deputy Secretary of State talks about the real potential for war with Iran. (Carnegie Endowment for International Peace)
  • One way the EU could help ease tensions is by pumping money into INSTEX, a vehicle created to facilitate non-US dollar trade with Iran, and getting non-EU members to join – including China. (International Crisis Group)
  • Among its other uses, oil has been a very handy means of amplifying geopolitical tension. (Harvard Kennedy School)
  • Why Iran’s recent claims that it has rolled up a CIA spy network might actually be true. (Christian Science Monitor)
  • As it squeezes Iran with sanctions, the Trump administration has succeeded in strengthening other countries’ incentives to bypass the US financial system altogether. (Australian Strategic Policy Institute)
  • While others have served as the public faces of the US’s “maximum pressure” Iran campaign, one little-known Treasury official is actually running its most important component. (The Atlantic)

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