Following attacks on six oil tankers and the shooting down of a sophisticated American drone in and around the Strait of Hormuz in recent weeks, the strategically important passageway has witnessed yet another dangerous encounter. The latest incident occurred when three Iranian boats “attempted to impede” a British oil tanker before being driven off by Royal Navy frigate HMS Montrose, according to the UK’s Ministry of Defence. Iran has threatened to seize a British-flagged vessel in retaliation for the seizure of one of its own vessels near Gibraltar last week.
Even though the Iranian Revolutionary Guards denied involvement in the confrontation, HMS Montrose reportedly issued verbal orders and trained its guns on the Iranian boats. They heeded those warnings and even though the confrontation ended peacefully, it is certain to stoke tensions in the region even further. Given recent developments, concerns are heightening about potential military conflict in one of the world’s most important chokepoints for oil shipments. Iran has frequently threatened to shut down the Strait of Hormuz due to tensions with the U.S. and military clashes have happened before.
Notable examples include the Tanker War phase of the Iran-Iraq war in the mid-1980s and Operation Praying Mantis in 1988 when the U.S. Navy took on Iranian forces, sinking several vessels over the course of a day. That was swiftly followed by the USS Vincennes shooting down Iran Air Flight 655, killing all 290 passengers and crewmembers onboard. Given its turbulent history, why is the Strait of Hormuz so strategically important?
According to Lloyd’s List Intelligence data published by the Financial Times, nearly 17 million barrels of oil passed through the narrow strait every day in 2018 – 30% global seaborne crude. That is a higher total than any other possible chokepoint for tankers on the planet with the Strait of Malacca, the second busiest passageway, seeing 15.7 million barrels passing each day. A mere 4.6 million barrels transited the Suez Canal on a daily basis last year. Unsurprisingly, Iranian threats to shut down the Strait of Hormuz and the harassment of tankers are taken very seriously.
If a chokepoint cannot be transited, it would have a major impact on global oil prices. Even though oil markets have not been perversely affected by recent events, insurance costs for shipping companies transiting the Persian Gulf have already spiked 10-fold in the past two months. If heightening concerns about oil were not loud enough, approximately one third of the globe’s liquefied natural gas also passes through the Strait of Hormuz each year.
*Click below to enlarge (charted by Statista)