Report says US did not fully factor in risk of Iran closing Strait of Hormuz

Iran has warned it may block the Strait of Hormuz under military pressure. (Image credit: Getty Images)

• US underestimated impact of Strait of Hormuz disruption
• Oil prices surged to USD119 a barrel after strait tensions
• Strait of Hormuz closure poses global economic risks

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A new report suggests that the US administration of Donald Trump did not fully anticipate what might happen if Iran moved to close the Strait of Hormuz before launching military action in the region.

According to reporting by CNN, US officials underestimated how quickly a disruption in the strait could shake global energy markets. The narrow waterway is one of the most important shipping routes for oil and liquefied natural gas anywhere in the world.

Roughly a fifth of the world’s oil supply moves through this passage every day. Tankers from countries such as Saudi Arabia, United Arab Emirates, Qatar and Iran pass through the strait on their way to markets in Asia, Europe and beyond.

When tensions in the region escalated and traffic through the strait slowed, the reaction in oil markets was immediate. Crude prices jumped to around USD119 a barrel, their highest level in more than a year.

Energy traders tend to react quickly to any threat involving the Strait of Hormuz because there are very few easy alternatives if shipments stop moving through it. Pipelines can carry some oil around the Gulf, but nowhere near the same volumes.

Iran has often warned in the past that it could block the strait if the country faced military pressure. Because of how much oil moves through the passage, even the possibility of that happening can push prices up.

The effects do not stay limited to oil markets for long. Higher crude prices eventually show up in the cost of fuel, shipping and sometimes food and other goods.

That is why the Strait of Hormuz has always been one of the most sensitive flashpoints in the Middle East. Any conflict that threatens shipping there quickly becomes a global economic concern.