Iran Parliament Approves Strait of Hormuz Closure, Oil Prices May Surge 64%

The Iranian Parliament has approved a measure to close the Strait of Hormuz, a critical oil choke point located between Iran and Oman. This decision comes in response to U.S. airstrikes on three nuclear sites in Iran. The closure of this strait could have severe implications for both the global and U.S. economy, as it is a vital route for oil and gas shipments, with approximately 20 million barrels, or 20 percent of global consumption, flowing through it annually.

The U.S. Secretary of State has warned against shutting down the strait, describing the move as "suicidal" for the Iranian regime. The final decision on whether to close the strait rests with Iran’s Supreme National Security Council. The threat to block the narrow waterway comes in response to U.S. strikes on three nuclear sites in Natanz, Isfahan, and Fordow. The Trump administration has argued that the strikes, dubbed Operation Midnight Hammer, were a monumental success. However, it is unclear how much the sites were damaged or how much the attack set back Iran’s nuclear program.

The Strait of Hormuz’s width and depth allow it to handle the world’s largest crude oil tankers, and very few alternatives exist if it is closed. More than 80 percent of the crude oil and natural gas that passed through the Strait of Hormuz was destined for Asian markets, with China, India, Japan, and South Korea being the top recipients. These countries would likely be the most affected by any closure.

The U.S. market would also feel some impact if the strait were disrupted. The U.S. has been buying less oil from the Persian Gulf, importing about 532,000 barrels per day. Still, consumers and businesses are still likely to see increased prices, given that oil is traded globally. It could take months for U.S. oil companies to drill more to compensate for those increased prices.

Oil prices in the past month increased due to the escalating Israel-Iran conflict, and these are estimated to climb further if Iran blocks the strait. Experts have said they estimate oil prices could increase from $73 per barrel up to $120 per barrel if tankers are blocked. Iran has previously seized or interfered with tankers during heightened political tensions.

While Iran’s Supreme National Security Council has yet to make a decision, some experts are skeptical that the country will actually close down the Strait of Hormuz. Experts say the move would invite a near-immediate response from the U.S., and it would be self-defeating to Iran’s own market.