At the Japan Energy Summit, Shell CEO Wael Sawan gave a strong warning about the effects on global trade that would happen if the Strait of Hormuz, which is a key oil chokepoint, is closed. He said that "any reason" for the shutdown would have a "huge impact" on trade and energy security around the world.
The Strait of Hormuz links the Arabian Sea to the Persian Gulf. Every day, about 20% of the world's oil flows through it. Any problem could throw the world's markets into a panic.
The price of oil could skyrocket.
As things get worse between Iran and Israel, there is a greater chance that military action will happen near the gap. Already, the price of Brent oil rose almost 1%, and it now trades at around $77 per barrel. Analysts are worried that if the strait is closed, the price of oil could go up to $120 to $150 a barrel, which would cause inflation and slow down global growth.
Shipping is messed up, and costs go up
Recently, the cost to rent an oil ship has more than doubled. Shipping insurance rates are going up sharply, and big companies like Frontline have stopped taking new bookings in the area. These changes would make shipping more expensive around the world, which would hurt trade routes from Asia to Europe and make prices go up for everyone.
India is one of the most vulnerable groups
India's economy would be stressed since over 40% of its crude oil comes from abroad via the Strait. India keeps 74 days' worth of oil in strategic reserves, but this may not be enough in a long-lasting disaster. As it did in 2019, the Indian Navy may again step in to protect commercial ships.
Effects on the world economy
In addition to oil, a blockade of the Strait of Hormuz would make it hard to sell gas and travel by sea. More expensive energy and transportation would cause prices to rise, which could lead central banks to tighten monetary policy. Already, investors are running to safe places like gold and the US dollar.
Shell and other big oil companies are getting ready for new shipping routes and stronger naval defenses. However, escape routes such as the Habshan–Fujairah pipeline or the Red Sea routes can only handle a certain amount of traffic.
The Strait of Hormuz isn't just a local problem; it's an important route for trade and energy around the world. Energy security plans and diplomatic talks are more important than ever as global risks rise.