One of the biggest risks to the global economy at present is the possibility that Iran could close the Strait of Hormuz, in line with its recent threats. Around 20% of the world’s oil trade and 28% of liquefied natural gas (LNG) exports pass through the waterway, and any disruption to this would cause oil prices to spike, thereby hurting oil importing countries (especially Asian nations, most of which import more than 90% of their crude) and driving up inflation rate worldwide.

In a special feature published on Business Monitor Online and in Emerging Markets Monitor this week, we discuss threats to Hormuz shipping. Although my colleagues and I do not believe that Tehran will carry out its threat, we at BMI periodically carry out thought experiments in which negative situations play out. In our special feature, we analyse:

• Reasons why Iran might close the Strait
• The impact this would have on oil markets
• How shipping routes may be disrupted
• The alternative shipping routes from the region
• The reaction of the US and its allies to the closure
• The impact of the closure on the Iranian economy

Even if Iran refrains from closing the Strait, the possibility will keep the oil market on edge. The bigger risk is that a limited skirmish between the Iranian and American militaries at sea could be a prelude to Washington waging a wider war against Iran to neutralise its nuclear programme. This in turn could escalate into a regional conflict, posing yet another danger to a global economy already roiled by the eurozone crisis and the spectre of a ‘hard landing’ in China.

Tags: closure, Gas, Hormuz Strait, Iran, oil, shipping
Posted in: Commodities, freight transport, General, Geopolitics, Middle East, oil and gas, Political Risk
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