Why 20% of Global Oil is Now Trapped and What It Means for Prices

Strait of Hormuz caters to a fifth of global oil and gas produced from the production facilities and refineries in the Gulf to buyers across the world. (AI Generated Image)

Global oil markets have been volatile and the prices have seen some of the biggest swings in hory this week after the US-Israeli war with Iran choked the flow of crude oil from the key passage of Strait of Hormuz.

Strait of Hormuz caters to a fifth of global oil and gas produced from the production facilities and refineries in the Gulf to buyers across the world. The significance of the strait can be adjudged with the volume of oil being transported on a daily basis which is 20 million barrels, making it the busiest oil route in the world after the Strait of Malacca between Malaysia and Indonesia.

The Strait of Hormuz is also a significant trade route for cargoes of liquified natural gas (LNG) which are transported on super-chilled tankers, The Guardian reported. The strait has effectively remained closed since the US-Israel launched strikes on Iran on February 28 and the Islamic nation resorted to attacking the US bases in the Gulf region.

The Hormuz strait connects the Persian Gulf to the west and Gulf of Oman (and Arabian Sea) to the east. (AI Generated Image)

Why is Strait of Hormuz difficult to pass

Unlike the Strait of Malacca, which carries over 23 million barrels of oil a day to major buyers like China, South Korea and Japan, Strait of Hormuz is tough to pass given the geography which in turn makes it one of the biggest throttle in the global oil and energy sector.

The Hormuz strait connects the Persian Gulf to the west and Gulf of Oman (and Arabian Sea) to the east. The strait connects Iran to the north from Oman and UAE to the south. At its narrowest point, the Strait of Hormuz is just 33 kilometres wide. And it is through this slender passage that the world’s 20% of crude and petroleum products pass in order to reach the wider global market.Story continues below this ad

However, UAE, Saudi Arabia and other Gulf countries who are major producers of oil and gas in the region have built pipelines that effectively pass the strait but it accounts for only a fraction of the capacity which is being produced on a daily basis.

Iran has weaponised the strait after the US-Israel attack and the IRGC has threatened to “set ablaze” any vessel passing through the route, The Guardian reported.