Energy Market Resilience: Crisis Impact | The Cipher Brief
Strait of Hormuz Closure: Global Energy Market Impact and alternatives
Updated June 21, 2025
Geopolitical risks, notably those stemming from the Middle East, have long influenced global energy markets. The potential closure of the Strait of Hormuz (SoH), a critical chokepoint for oil and liquefied natural gas (LNG) shipments, remains a important concern. While energy markets have shown resilience, a closure could still trigger price spikes and economic repercussions, especially for Asian economies heavily reliant on SoH transit.
The U.S. is likely collaborating with Saudi Arabia and the United Arab Emirates to manage oil production and exports should the Strait be blocked. These nations possess the capacity to increase output and utilize alternative routes, mitigating some of the disruption. The U.S. is also expected to work with consumer nations to coordinate releases from strategic oil stockpiles.
Oil prices are anticipated to remain volatile, perhaps reaching $120-$140 per barrel if conflict intensifies. While oil-producing nations, including the U.S., could benefit from increased revenues, developing countries and those with limited energy reserves would likely suffer. higher oil prices would also contribute to inflation, potentially slowing economic growth.
China, India, South Korea, Pakistan, and Japan are the primary purchasers of oil transiting the SoH. While the U.S. imports a relatively small percentage of its crude oil from the region, a closure would still have global implications.
Alternative routes to bypass the Strait of Hormuz exist,but their capacity is limited compared to the volume of oil and LNG that passes through the waterway. The Saudi East-West Pipeline, with a potential capacity of around seven million barrels per day, connects Saudi Arabia’s eastern oil fields to the Red Sea. The Emirati outlet in Fujairah can handle 1.5 to 1.8 million barrels per day. iran’s Jask Port, opened in 2021, could export around 300,000 barrels per day.
Iran possesses several options to disrupt traffic through the Strait, ranging from GPS interference and cyberattacks to deploying mines and missiles. The U.S. would likely respond swiftly with naval and air assets, potentially in collaboration with allies like the United Kingdom and India.
While OPEC+ has spare capacity, much of it is located within the Persian Gulf, rendering it vulnerable in the event of a closure. China, a major buyer of Iranian oil, has largely avoided involvement in regional security issues, focusing instead on its economic interests.
Qatar, a major LNG producer, relies on the Strait of Hormuz for all of its exports. Any violence in the Gulf could threaten this crucial energy source. Attacks on gas fields shared by Qatar and Iran, or on Israel’s gas industry, could also have significant market repercussions.
What’s next
The global energy market will continue to monitor geopolitical tensions in the Middle East, particularly those involving Iran and the Strait of Hormuz. The development of alternative energy routes and the strategic management of oil reserves will be crucial in mitigating potential disruptions and ensuring energy security.