Blocking even part of this flow would raise the price of oil from $60 a barrel in early May to $100 or more; it would send stock markets crashing on fears of inflation and economic recession.
Since yesterday morning, the Tehran Parliament has “approved” the closure of the Strait of Hormuz. However, the Middle Eastern markets have reacted as if they did not believe it. Of course, the final test will come today with the reopening of financial exchanges in Asia, Europe and finally in the United States, but above all with the resumption of the circulation of about fifty oil tankers and gas tankers that enter and exit the Persian Gulf every day.
Because now Iran cannot just choose between blocking Hormuz or leaving it open; it has a set of cards to play, each with a different potential impact on oil (and therefore gasoline) and gas prices, and therefore on inflation and economic growth in Europe. It will depend on how much the ayatollahs intend to get involved in this crisis. Just hours after the US bombing of nuclear facilities, the Iranian parliament voted for the harshest economic retaliation yet: closing the Strait of Hormuz, a 161-mile-long strip of sea that is only 33 miles narrow at its closest point between Iran and the Arabian Peninsula. About 20 percent of the world’s crude oil supply passes through it – including from Saudi Arabia, the United Arab Emirates, Iraq and Iran itself – as well as over 10 percent of its natural gas, including gas from Qatar.
Blocking even part of this flow would raise the price of oil from $60 per barrel in early May to $100 or more; it would crash stock markets on fears of inflation and economic recession.
Markets
At least that wasn’t the case yesterday. It didn’t matter that Hossein Shariatmadari, a propagandist close to Ayatollah Ali Khamenei, had proposed blocking the passage of “American, British, German and French” ships. The main index of the Tel Aviv Stock Exchange (TA125) rose 1.8% yesterday, even though a few days earlier the exchange building had been hit by a missile from Tehran. For the Israeli market, this was a reaction opposite to that of June 13, when the Israeli government first launched a military campaign against Iran; then the stock exchange fell by more than 1%.
Other markets: Riyadh fell just 0.3%, as if to show that investors do not believe that the closure of Hormuz is real; Cairo rose 2.7% and even the markets most exposed to the war, such as those of Kuwait, Oman and Qatar, remained above their previous level. America’s involvement in the war and the threat of an energy shock to the most important energy source do not seem to have generated panic.
In a way, the idea is that the end of the conflict, however temporary, is on the horizon. There is also a rational calculation of what Tehran can do. Because in a theocracy, it is not Parliament or propagandists who decide on Hormuz. China, the almost sole customer of Iranian oil – and now one of its sponsors – does not want an escalation. For this reason, Signum Global Advisors, a geopolitical consulting firm, has summarized the ayatollahs’ dilemma: the theocracy, according to Signum, “does not want to pursue a diplomatic exit” but also “does not want to expand the war”; therefore, it will seek some kind of retaliation to prevent a further descent into war.
Retaliation
According to Signum, this excludes the possibility of blocking or mining Hormuz, taking advantage of the shallowness. However, more open actions are not excluded and may be new. Since 2022, the Revolutionary Guard has seized four oil tankers and merchant ships. Acts such as maneuvering small ships to prevent the passage of large ships are now considered routine; especially these days when the French group Mica reports interference in the strait by jamming the satellite signals of about a thousand ships, which pass through that area every day. Perhaps for this reason, a few days ago, two oil tankers collided.
All of these moves, still below the threshold of a total blockade, have injected stress into financial markets. As of this morning, the risk surrounding the Strait of Hormuz will probably cause the price of oil to rise by a few dollars – not much – but enough.
And consequently, the price of fuel will also be affected. Prices could start to rise, especially due to speculative behavior in distribution. The situation with natural gas is even more fragile, right now that all of Europe needs to fill its reserves. Undoubtedly, the Greek government and the British Royal Navy have warned their ships yesterday: Athens, the headquarters of some of the largest shipping companies in the world, is calling on companies to “reconsider” the passages through Hormuz, while London warns that there is a “high threat” to commercial ships, not only at the entrance to the Gulf, but also in the Gulf of Aden and the entrance to the Red Sea.
