As tensions rise in the Middle East, concerns are growing about disruption to the Strait of Hormuz, one of the world’s most important energy shipping routes. Any disruption could significantly impact major oil importing countries like India, as the narrow Strait of Hormuz is the hub for global energy trade. About 20 million barrels of oil pass through the strait every day, or about one-fifth of the world’s consumption. The waterway carries about 19% of global liquefied natural gas (LNG) shipments, making it a vital corridor for energy-importing economies.A recent report from Goldman Sachs marked early signs of stress in the region. The report warned that tanker traffic through the Strait of Hormuz has already begun to show signs of disruption, with shipping companies, oil producers and insurers taking a cautious approach following reports of damaged ships in surrounding waters.According to the firm, financial markets have already begun to take geopolitical risk into account. Oil prices currently have an estimated risk premium of $18 per barrel, reflecting the potential market impact if energy flows through the Strait of Hormuz were disrupted for about a month.
Even if oil facilities are not directly damaged, the closure of a shipping route could affect a significant portion of global supply. The report estimates that in the event of a complete closure, oil flows of about 16 million barrels per day could be affected, despite the availability of some pipeline routes designed to bypass the strait.And the risks are not limited to crude oil shipments, with around 80 million tonnes of LNG exported annually, much of it passing through Qatar. Any prolonged disruption could lead to a reduction in gas supply globally and potentially send European benchmark gas prices back to levels seen during the 2022 energy crisis.
Asian economies are most affected by such disruptions. Major importers such as China, India, Japan and South Korea are heavily dependent on oil and LNG shipments passing through the strategic corridor.While global oil inventories and excess production capacity could help cushion short-term shocks, the report warned that continued disruption to Gulf shipping routes could lead to sharp volatility in global energy markets and drive up prices of oil, gas and refined fuel products.Market participants and governments are closely monitoring tanker traffic in the Strait of Hormuz, along with diplomatic and military developments involving the United States, Iran and the Gulf states, to assess whether the current disruptions are temporary or will turn into broader energy supply shocks.
