The Strait of Hormuz is Iran's most powerful economic weapon – but blocking it would cost the regime dearly

Roughly a week after the outbreak of war, it's becoming increasingly clear: From a military perspective, Iran has no equal to its adversary, Israel. The mullah regime has so far been clearly inferior technologically and organizationally; this imbalance will only be exacerbated by the US entry into the war .

Nevertheless, Iran has a potentially powerful weapon, albeit an economic one. The country could close the Strait of Hormuz—a bottleneck for global oil trade. This would have repercussions far beyond the region.

Shortly after the American bombing attacks on Iranian nuclear facilities, rumors about an impending blockade of the Strait of Hormuz circulated on social media. However, according to Nicole Grajewski, an Iran expert at the Carnegie Endowment for International Peace, there has yet to be an official Iranian response to this issue, and such rumors should be treated with caution.

The Strait of Hormuz lies between the Persian Gulf and the Gulf of Oman. It is only 38 kilometers wide at its narrowest point and is of great strategic importance. One-fifth of global oil production passes through this strait. It is used not only by Iranian tankers, but also by ships from Saudi Arabia, Iraq, Kuwait, and the United Arab Emirates, among others. Over one-fifth of the world's liquefied natural gas supply, primarily from Qatar, also passes through the strait.

What would happen if the worst-case scenario were to occur and the Strait of Hormuz were to be paralyzed to shipping? Economists at the American Citigroup estimate in a study that the price of Brent crude oil would skyrocket from the current $77 per barrel to around $90; that would represent an increase of 17 percent. "Any closure of the strait could lead to a sharp price increase," the analysis states, as reported by the Bloomberg news agency.

However, analysts at Citigroup consider a months-long closure of the strait unlikely. They assume that, in the event of a closure, all efforts would be focused on quickly reopening the passage. According to the bank, even a disruption of Iranian oil supplies would have a less far-reaching impact on oil prices than previously expected. This is because the country's exports are already declining and Chinese refineries are importing less oil from Iran.

A potentially looming price increase of 17 percent may seem high at first glance—partly because the price of crude oil recently climbed to its highest level in five months. However, this increase was preceded by a significant decline since mid-January, so the price of crude oil is currently only slightly above its level at the beginning of the year. A price above $90 would not be unusual, even considering recent history: The price was already there once in September 2023, and even reached $120 in the summer of 2022.

Analysts at Germany's Commerzbank also see no reason for alarm. While they consider the current risk premium on the oil price to be justified, because in the event of a blockade, the affected oil would hardly be transportable via other routes such as pipelines, Commerzbank describes a closure of the Strait of Hormuz as "very unlikely." They argue that this would severely harm Iran's own economy, making it almost impossible for Iran to export oil itself.

There is another point that speaks against a blockade of the strait from Iran's perspective. A blockade would alienate China, the most important buyer of Iranian oil. China obtains the majority of its oil imports from the Persian Gulf and would be severely affected by a blockade. However, Tehran can ill afford Beijing's anger at the moment. The Asian partner often uses its veto in the UN Security Council to protect Iran from sanctions or resolutions. Iran is unlikely to jeopardize this support lightly.

Even in the Strait, there is little indication that Iran will make good on its threat. Tracking data compiled by the news agency Bloomberg show that oil tanker shipments remained fairly stable in terms of volume during the first week of the war. However, shipments have become more expensive. For example, the price of chartering a tanker from the Gulf region to China has more than doubled since the outbreak of the war, from $20,000 to just under $48,000, according to data from Clarkson Research.

Although Iran's leadership has repeatedly threatened to block the Strait of Hormuz in previous conflicts, it has so far remained a threat. While there have been repeated disruptive maneuvers, most recently in April of last year, when Iran seized a container ship with ties to Israel, a complete closure has never occurred, not even during the Iran-Iraq War (1980–1988), when both sides damaged or sank over 400 ships during the so-called Tanker War.

In the past, Iran always considered the hurdles too high to resort to this measure. This is likely to be no different today. The Strait of Hormuz is of central importance to Iran's economy – and that of its neighboring countries. Closing it would also be a violation of international law and would further exacerbate the regime's international isolation. A policy of targeted pinpricks, which would hint at Iran's own power but not ultimately apply it, is therefore more likely than a blockade.

The fact that the US is now also participating in the war by bombing Iran's nuclear facilities doesn't necessarily change the mullah regime's calculations. The same reasons still speak against a blockade of the Strait of Hormuz.

How strongly the oil price will react to the new situation, however, also depends on the extent of America's war aims, as this, in turn, is likely to influence Iran's reaction to the attack. Donald Trump's announcement late Saturday evening – to attack additional targets if Iran does not back down – has not averted the danger of further escalation.