The world is on the edge of its seat as tensions between the US, Israel, and Iran threaten to send oil prices soaring and economies reeling. But here’s where it gets controversial: while the Strait of Hormuz—a critical chokepoint for global oil supply—has reportedly been closed to shipping, Iran hasn’t officially confirmed this move. So, what’s really happening, and how bad could it get? Let’s break it down.
The conflict has erupted around the Strait of Hormuz, a vital shipping route connecting the Middle East’s oil giants—Saudi Arabia, Iraq, Iran, the UAE, Kuwait, Qatar, Bahrain, and Oman—to the rest of the world. Together, these nations produce a staggering 27% of the world’s crude oil. And this is the part most people miss: nearly three-quarters of that oil (about 20% of the global supply) passes through this single strait. A smaller portion travels through the Red Sea and the Bab-el-Mandeb Strait, but Hormuz is the undisputed kingpin of oil transit.
While no single country controls the strait, Iran’s military presence looms large. It can exert authority up to 12 nautical miles from its coastline, effectively restricting shipping at the strait’s narrowest point. Vessels in the area have already received alerts warning of the closure, according to the UK Maritime Trade Operations agency. The US Maritime Administration echoed this caution, advising ships to steer clear if possible. Yet, Iran remains silent on whether it’s officially behind the shutdown.
Economists are sounding the alarm. AMP chief economist Shane Oliver predicts oil prices could spike above $100 a barrel, up from $67 on Friday for West Texas Intermediate. Why? The disruption to oil supplies, coupled with the escalating conflict, could create a perfect storm. Here’s the kicker: this situation might even surpass the 2022 oil price spike caused by Russia’s invasion of Ukraine, given the involvement of key oil producers in the region.
Marcus Today senior market analyst Henry Jennings agrees, suggesting prices could hit $90 a barrel if the strait remains blocked. His advice? ‘Fill up your car now while petrol is still relatively cheap.’ But much hinges on Iran’s next move. A $10-per-barrel increase could translate to a 1-cent-per-litre rise in Australian petrol prices, meaning a jump from $67 to $107 could add 40 cents per litre at the pump.
The ripple effects are far-reaching. For Australia, the implications are mixed. On one hand, sustained disruptions to Middle Eastern oil exports to China could weaken China’s economy, potentially reducing its demand for Australian imports. On the other hand, nearly one-fifth of the world’s liquefied natural gas (LNG) also passes through the Strait of Hormuz. Higher LNG prices could benefit Australia, a major LNG exporter, but they might also lead to higher domestic gas prices.
Here’s the burning question: How long will this conflict last? Shane Oliver warns that a prolonged standoff would inflict deeper economic damage globally. And while experts debate the severity, one thing is clear—the world is watching, wallets in hand, as this crisis unfolds.
What do you think? Is this conflict overblown, or are we on the brink of a major economic shock? Let us know in the comments—we’d love to hear your take!
