The Strait of Hormuz Is Not Just a Waterway — It Is the Market’s Main Transmission Channel

Hormuz is uniquely dangerous because there are few practical substitutes. The EIA describes it as one of the world’s most important oil chokepoints and notes that very few alternative options exist if the strait is closed. In 2024, flows through Hormuz accounted for more than one-quarter of total global seaborne oil trade and about one-fifth of global oil and petroleum product consumption. Saudi Arabia and the UAE do have some pipeline capacity that can bypass the strait, but the EIA estimates only about 2.6 million barrels a day of spare bypass capacity would be available in a disruption, far below the scale normally moved through the waterway.

That supply dependence quickly turned into shipping paralysis once the conflict escalated. Reuters reported on March 2 that around 750 ships were backed up around the Strait of Hormuz, including roughly 100 container ships, equivalent to about 10% of the global container-ship fleet. By March 6, Reuters reported that war-risk insurance premiums had surged by more than 1000% in some cases, while at least nine vessels had been damaged since the conflict began. Yet the Lloyd’s Market Association later clarified that insurance itself was not the main reason traffic stayed depressed; the deeper problem was crew and vessel safety, with 23 commercial-vessel or offshore attacks reported across the Arabian Gulf, Strait of Hormuz, and Gulf of Oman, and around 20,000 seafarers affected.

By early April, the strait was not fully reopened so much as selectively managed. Reuters reported that Oman-linked tankers, a French-owned CMA CGM container ship, and a Japanese-owned LNG carrier were able to pass after Iran began allowing vessels without U.S. or Israeli connections to transit. On April 5, Reuters also reported that a Petronas-linked tanker carrying about 1 million barrels of Iraqi crude had passed through the strait after Iraq was exempted from restrictions. These selective passages matter because they show that the crisis is no longer a binary “open versus closed” event. Instead, it has become a politicized traffic regime in which passage depends on national alignment, diplomatic bargaining, and perceived neutrality.

For markets, that is almost as destabilizing as a formal blockade. Reuters reported on April 5 that Brent was trading around $109.79 and WTI around $111.01 after huge one-day jumps of 8% and 11% respectively the previous Thursday, while OPEC+ agreed only to a modest theoretical output increase because much of the relevant Gulf supply still could not move freely. The practical lesson is that even when some ships start crossing again, confidence does not return quickly. Refiners still have to find replacement barrels, shipping owners still have to price in danger, and traders still have to assume that any renewed strike or political decision could tighten flows again overnight. That is why the Strait of Hormuz remains the central financial variable in this crisis, not just a geographical one.