The closure of the Strait of Hormuz is considered one of the most catastrophic scenarios for the global economy and geopolitics. This could trigger far more than just an oil crisis. Here are the potential impacts if the Strait of Hormuz closes:
What Happens if the Strait of Hormuz Closes?
The closure of the Strait of Hormuz is considered one of the most catastrophic scenarios for the global economy and geopolitics. This could trigger far more than just an oil crisis. Here are the potential impacts if the Strait of Hormuz closes:
The Strait of Hormuz is the lifeline of global energy trade. Approximately one-third of the world's seaborne crude oil (an average of 20-21 million barrels per day) and nearly 20% of global LNG (liquefied natural gas) trade passes through this strategic chokepoint, which connects the Persian Gulf to the Gulf of Oman. Therefore, its closure would create a devastating ripple effect.
1. Astronomical Increases in Energy Prices
Oil Prices Skyrocket: In the event of a complete closure of the Strait of Hormuz, there would be a massive contraction in oil supply. Experts suggest that Brent crude oil prices could exceed $120-130 per barrel in the short term, and potentially climb much higher. This would deliver a shock to the global economy.
Natural Gas Prices Rise: As shipments from major LNG exporters like Qatar would be disrupted, natural gas prices would also increase significantly. This would raise electricity generation and industrial costs for many countries, especially in Asia and and Europe.
2. Deep Global Economic Crisis and Recession Risk
Inflation Shock: Soaring energy prices would increase production and transportation costs across all sectors, fueling high inflation globally.
Supply Chain Disruptions: Disruptions in energy supply and rising costs would lead to severe breakdowns in global supply chains. Many industries and manufacturing sectors would face difficulties in accessing raw materials and energy.
Economic Growth Stagnation: High energy prices and inflation would reduce consumer spending, decrease investments, and consequently lead to a sharp slowdown in global economic growth, even risking a recession.
Financial Market Turmoil: A sudden surge in oil prices and economic uncertainty could cause sharp declines in global stock markets, while leading to limited increases in safe havens like gold and the dollar.
3. Geopolitical and Security Consequences
International Intervention: The closure of the Strait of Hormuz could be considered an "act of war" under international law. There would be a high probability of direct military intervention by many countries, particularly the U.S. and NATO members, citing energy security. This situation could trigger a major regional and even global conflict.
Regional Instability: Any such move by Iran would escalate relations with Gulf countries (Saudi Arabia, UAE, Kuwait, etc.) to their most tense level, increasing the risk of regional conflict.
Limited Alternative Routes: There is no comprehensive alternative sea route that could replace the Strait of Hormuz. The capacity of existing pipelines can only transport a small fraction of the oil and gas that passes through the strait.
4. Impacts on Turkey
As a country highly dependent on energy imports, Turkey would be severely affected by the closure of the Strait of Hormuz:
Higher Energy Bills: The increase in oil and natural gas prices would multiply Turkey's energy import bill. This would further widen the current account deficit.
Inflationary Pressure: Rising energy costs would increase production and transportation expenses, leading to further escalation of domestic inflation. This would significantly complicate the Turkish Central Bank's fight against inflation.
Pressure on Exchange Rates: A high energy bill and widening current account deficit would create significant depreciation pressure on the Turkish Lira, pushing up exchange rates.
Slower Economic Growth: The increase in energy costs and global economic slowdown would negatively impact Turkey's economic growth rate. Industrial production and exports could be severely hampered.
Direct Oil Imports: Although Turkey has not imported oil from Iran since 2019, a significant portion of crude oil supply coming from the Persian Gulf via Hormuz (around 20% according to last year's figures) would be affected. However, officials state that this can be compensated for. A portion of Turkey's natural gas imports also comes from Iran via pipelines. While independent of Hormuz, increased regional tension could have indirect effects.
