Strait of Hormuz Closure Risk
The IRGC has announced the closure of the Strait of Hormuz in response to military action by the United States and Israel during ongoing Nuclear Deal negotiations. The implications of this development are difficult to overstate.
The Strait of Hormuz is the world’s most critical energy chokepoint, and its strategic weight is reflected in the volumes that transit it daily. In 2024, oil flows through the strait averaged 20 million barrels per day — equivalent to approximately 20% of total global petroleum liquids consumption and 27% of all seaborne oil trade. Saudi Arabia alone contributes approximately 5.5 million b/d, representing 38% of total Hormuz crude flows. Destination-wise, roughly 84% of transiting crude is bound for Asian markets, with China, India, Japan, and South Korea collectively accounting for 69% of all flows. The strait also carries approximately one-fifth of global LNG trade, the majority of which originates from Qatar.
Crucially, even if Saudi Arabia and the UAE were to fully activate their overland bypass pipelines, an estimated two-thirds of current Gulf crude exports would remain without an alternative route. Iraq, Kuwait, and Qatar possess no comparable bypass infrastructure, leaving close to 14 million b/d structurally exposed to any sustained disruption. The total annual value of energy trade transiting this single passage is estimated at nearly $500 billion. Any closure — even a brief or partial one — constitutes an immediate and severe supply shock for which no short-term substitute exists.
OPEC+ Production Increase: A Gesture, Not a Game-Changer
Against this backdrop, eight OPEC+ members — Saudi Arabia, Russia, Iraq, UAE, Kuwait, Kazakhstan, Algeria, and Oman — agreed in a virtual meeting on Sunday to raise collective output by 206,000 barrels per day from April 2026. The adjustment forms part of the gradual unwinding of the 1.65 million bpd in voluntary cuts introduced in April 2023, with the group referencing stable economic conditions and low global inventories as the basis for the decision.
In practice, I remain sceptical that this increment will produce any discernible effect on the global supply balance. At approximately 0.2% of total global daily consumption, 206,000 bpd is a modest figure under any market conditions — and against the threat of removing 20 million barrels per day from seaborne trade, it is effectively inconsequential. This is better understood as a diplomatic signal of internal cohesion than a substantive supply intervention, and the market is unlikely to treat it otherwise.
