The Strait of Hormuz
A shipping lane two miles wide in each direction carries about a fifth of the world's petroleum liquids. There is no second route for most of it, which is why this stretch of water is priced into the oil market permanently.
At a glance
- Where
- Between Iran and Oman, connecting the Gulf to the Arabian Sea
- Narrowest point
- About 21 nautical miles wide; the shipping lanes are two miles each way
- Oil transit
- Roughly 20 million barrels per day, about a fifth of global consumption
- LNG transit
- About a fifth of global liquefied natural gas trade
What the chokepoint actually is
The Strait of Hormuz connects the Persian Gulf to the Gulf of Oman and the open ocean. At its narrowest it is about twenty-one nautical miles across, and the traffic separation scheme gives inbound and outbound vessels a lane two miles wide each. Both lanes sit within territorial waters, which is the geographic fact underneath every legal argument about the strait.
Ships pass under the regime of transit passage, which the Law of the Sea convention says a coastal state may not suspend. Iran signed but never ratified that convention and has disputed elements of it, which is why the legal status of a closure is contested rather than settled - a distinction that matters when a market asks whether the strait was closed.
Practically, the strait is not a place where oil can be rerouted. It is the only sea outlet from the Gulf, so the crude and LNG of Saudi Arabia, Iraq, Kuwait, Qatar, the UAE and Iran either pass through it or take a pipeline that mostly does not exist.
The only sea exit from the Gulf. Bypass pipelines can carry roughly a third of what transits; the rest has nowhere else to go.
Why it matters economically
About twenty million barrels a day of crude and refined products pass through, close to a fifth of global petroleum liquids consumption, along with a comparable share of the world's liquefied natural gas - almost all of the latter from a single exporter. No other chokepoint carries that concentration of energy trade.
The destination matters as much as the volume. The large majority of Hormuz crude goes to Asia, with China, India, Japan and South Korea the biggest buyers. A disruption is therefore first an Asian supply crisis and only second a global price event - though the price channel reaches everyone within hours.
There is a second-order effect that markets consistently underprice: shipping cost. Even a threat that does not stop a single cargo raises war-risk insurance premiums for vessels entering the Gulf, and that surcharge is a real, immediate tax on every barrel loaded - visible in freight rates days before it shows up in any political analysis.
| Name | Share |
|---|---|
| Saudi Arabia | 32share of Hormuz crude exports |
| Iraq | 18share of Hormuz crude exports |
| United Arab Emirates | 16share of Hormuz crude exports |
| Kuwait | 13share of Hormuz crude exports |
| Iran | 12share of Hormuz crude exports |
| Qatar and others | 9share of Hormuz crude exports |
Source: US Energy Information Administration, world oil transit chokepoints
The geography, the alternatives and the legal instruments
Two pipelines can move Gulf crude to the open sea without passing the strait. Saudi Arabia's East-West pipeline runs to the Red Sea at Yanbu with a capacity around five million barrels a day, and the UAE's line to Fujairah on the Gulf of Oman adds roughly one and a half million. Together they are a partial answer at best - and the Red Sea route has had its own security problems.
Everything else depends on the strait. Iraq's southern exports, Kuwait's entire seaborne trade and Qatar's LNG have no bypass at all, which is why estimates of usable spare capacity in a disruption are far smaller than the headline pipeline numbers suggest.
The legal instruments to check when a market talks about closure are specific: transit passage under the Law of the Sea convention, national notices to mariners, war-risk designations by the insurance market's joint committee, and any naval escort or convoy arrangement announced by coalition forces. These produce dated, published documents - which is what a market can settle on.
- Saudi East-West pipeline to Yanbu: roughly 5 million barrels per day of capacity.
- UAE pipeline to Fujairah: roughly 1.5 million barrels per day.
- Iraq's southern exports, Kuwait's crude and Qatar's LNG have no bypass.
- War-risk area designations are published by the insurance market and dated.
Gulf loading terminals
Ras Tanura, Basrah, Ras Laffan and others
Bypass pipelines
Yanbu and Fujairah - partial, and only for two countries
Concentrated in Covers roughly a third of transit volume
Strait transit
Two-mile lanes inside territorial waters
Gulf of Oman
Where war-risk premiums are assessed
Asian refineries
The large majority of cargoes head east
Behind the subscription
The rest of this entry is the part that changes a decision: what moves the price, which contract sets it, who ships it and where that can be cut off.
What drives escalation and what it costs
Six escalation channels, ranked - and the reason a full closure has never happened despite decades of threats.
Where this risk is priced
Four instruments carry Hormuz risk, and only one of them is a prediction market - the other three move first.
Who ships through it and who receives it
The exporter and importer split, and why a Hormuz disruption is an Asian supply event before it is a global price event.
How this shows up in prediction markets
Closure, attack and escalation questions - and the definition problem that decides almost all of them.
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Frequently asked questions
- How much oil actually passes through the Strait of Hormuz?
- Roughly twenty million barrels a day of crude and refined products, about a fifth of global petroleum liquids consumption, plus about a fifth of world LNG trade. No other chokepoint carries a comparable concentration of energy trade.
- Could the oil be rerouted if the strait closed?
- Only partly. Saudi Arabia's pipeline to the Red Sea and the UAE's line to Fujairah can together move roughly a third of transit volume, and they serve only those two countries. Iraq's southern exports, Kuwait's crude and Qatar's LNG have no bypass at all.
- Has the strait ever actually been closed?
- No. It has been threatened repeatedly since the 1980s, and during the tanker war hundreds of vessels were attacked while traffic continued at a higher insurance cost. Harassment and seizures are the historical pattern; closure is not, partly because it would also cut the exporters' own revenue.
- What is the fastest signal that risk is rising?
- War-risk insurance premiums and tanker freight rates for Gulf loadings. Both are quoted daily, both reflect what shipowners believe about the next voyage rather than the next quarter, and both move before the flat price of crude does.
Primary sources
Related entries
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