In today’s Finshots, we tell you why the Strait of Hormuz won’t shut down and why that tiny strip of water could still move your portfolio.

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The Story

We wouldn’t blame you if you thought that the global oil market was on the verge of collapse.

After all, Iran’s parliament just voted to shut down the Strait of Hormuz — the narrow stretch of water through which nearly 20% of the world’s oil and a third of its liquefied natural gas (LNG) flows every single day.

And with tensions in the Middle East flaring up again, this could be a critical moment that upends a global energy artery and eventually hits your wallet too.

But here’s the thing. While the headlines scream closure, the reality is a bit more complicated. Actually, a lot more complicated.

And to understand how it could impact you, let’s take it from the top.

The Strait of Hormuz is a 39-kilometre-wide waterway between Iran and Oman.

At its tightest point, the shipping lanes are just three kilometres wide in each direction, separated by a buffer zone. Every day, over 21 million barrels of crude oil and refined products pass through it. And about 84% of that oil and LNG heads to Asia, with China, India, Japan and South Korea being the top buyers.

So yeah, if the Strait ever truly shut down, the global economy would feel it almost immediately.

But you see, while the Iranian legislators may have said to block this channel, the final decision vests with Iran’s Supreme National Security Council. And unless that goes ahead, there can’t be a closure.

And here’s where things get a little ironic because what’s often left out of the narrative is that Iran itself relies on this route more than most.

Despite years of sanctions, Iran still manages to export about 1.7 million barrels of oil per day (bpd). And nearly 90% of that heads to China, its most important customer and arguably its last major economic lifeline.

All of this oil flows through the Strait of Hormuz.

Now, sure, Iran has built a new terminal at Jask, just outside the Strait. But it’s not yet equipped to handle full volumes. In 2024, for instance, it processed less than 70,000 bpd — just a fraction of Iran’s total exports. Which means, if Iran were to actually close the Strait, it wouldn’t just be blocking Saudi or Emirati oil. It would also be choking off its own revenue stream.

And that’s not all. A large chunk of Iran’s own imports — everything from food to fuel additives, also sails through Hormuz.

Then there’s the question of who else gets affected. The US, for one, doesn’t buy much Iranian oil or gas. Neither does Europe — at least not officially. While the US does import about half a million bpd from Persian Gulf countries via Hormuz, that makes up just 7% of its total petroleum liquids consumption, thanks to domestic shale production and steady imports from Canada.

But let’s say for argument’s sake that the worst does happen. Hormuz is closed.

Even then, history tells us that the panic may be short-lived.

Back in 2003, just before the Iraq War, oil prices surged by over 40%, only to tumble, once things escalated. In 2022, when Russia invaded Ukraine, oil touched $130 per barrel. Within three months, it was back down below $100. Why? Because demand adjusts, inventories get tapped and importantly, backup options kick in.

For instance, Saudi Arabia can redirect about 5 million bpd through its East-West pipeline to the Red Sea. The UAE has a 1.8 million bpd pipeline that bypasses Hormuz entirely via the port of Fujairah. China holds over 1 billion barrels in strategic reserves. And in 2024, the US brought its crude imports from the Gulf down to the lowest level in nearly four decades.

The only way to shut down the Strait is if Iran lays marine mines. But there are a bunch of Western mine sweeping ships nearby, ready to deal with that if it happens. And even that kind of move will invite retaliatory action.

Now that might make you wonder — fine, maybe Iran won’t go all in. But what if it disrupts traffic just enough to scare the markets?

Well, that’s already playing out. Shipping rates for Very Large Crude Carriers (VLCCs) have doubled in recent days, and war risk premiums for oil tankers operating in the Persian Gulf have shot up. These premiums are extra charges shipowners demand when entering dangerous zones. Basically, higher pay for higher risk. And with nearly 1,000 vessels experiencing GPS jamming every day in and around Hormuz, the danger feels real enough.

And this is the part that most headlines miss. The real threat isn’t a hard closure of the Strait. It’s the soft disruption that this kind of shadow warfare brings. It raises friction, uncertainty and costs.

As someone told me the other day, ‘The travesty of our times is – conflict isn’t failure, but a business model.’

That cost trickles silently through the global economy. It hits refiners who now pay more to secure their cargo. It hits logistics firms whose expenses rise across shipping lanes. And it hits governments, which either dip into reserves or shell out more to subsidise fuel.

Take India for example. Refiners like Indian Oil, BPCL and HPCL source a large chuck of their crude from the Gulf nations, often under long-term contracts routed via the Strait of Hormuz. While we’ve diversified with imports from other nations, nearly two-thirds of our crude and half of LNG imports still pass through that narrow waterway.

You may not see petrol or diesel prices spike immediately, thanks to state administered pricing. But behind the scenes, higher freight and insurance costs slowly bleed into the economy.

Paint manufacturers like Asian Paints and Berger feel it in input costs, as oil derived solvents get pricier. Pharma companies like Dr Reddy’s, Lupin and even Sun Pharma — which has a huge presence in the Middle East with its majority stake in Taro Pharmaceuticals — could take a hit. Airlines, where fuel makes up 30–40% of costs, see their margins wobble. Cement and steel companies, reliant on diesel for last-mile freight, get squeezed. Fertiliser firms feel the pinch. Even FMCG giants like HUL and Dabur take a hit as distribution becomes costlier.

It all shows up, quietly, in earnings calls. In falling EPS. In trimmed forecasts.

And if you’re watching from the sidelines, the impact doesn’t always show up where you’d expect. Oil prices may take time to react. The bigger signals often surface first — in rising insurance premiums, surging tanker rates, port congestion and delayed delivery cycles.

In India, this sensitivity often plays out in the stock market. Logistics stocks tend to price in disruption risk faster than oil linked ones.

Because at the end of the day, markets don’t just react to headlines. They react to how events ripple through trade flows.

In a world this tightly wound, a 39-kilometre stretch of water can quietly move prices on Dalal Street. And that’s why the Strait of Hormuz matters. Not just for the oil it ferries, but for what it symbolises: a fragile hinge upon which global trade, inflation and portfolios turn.

And perhaps that’s why, despite the threats, it never really stops running.

Until then…

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