Strait of Hormuz Closure Sparks Oil Surge and Global Supply Concerns

The Strait of Hormuz, a vital waterway for global energy and food supplies, has been nearly closed due to Iran's attacks on ships. This has triggered a surge in oil prices, with West Texas Intermediate (WTI) crude nearly doubling this year to close above $112 a barrel, and Brent crude rising almost 80% to over $109 per barrel. The closure has halted ship traffic, as insurance coverage for vessels passing through the Strait has become nearly impossible to obtain. Before the conflict, 20% of global crude oil and liquefied natural gas (LNG) passed through the Strait daily. In addition to energy, the region is a major exporter of fertilizer and a key importer of food, making the disruption a dual threat to global markets. Efforts to mitigate the crisis include a record release of 400 million barrels of oil from emergency stockpiles by the International Energy Agency (IEA), covering about 20 days of supply. Saudi Arabia has increased oil exports via the East-West Pipeline to Red Sea terminals, which now operates at a capacity of 7 million barrels per day (BPD), up from 1.7 million BPD before the conflict. The UAE's Abu Dhabi Crude Oil Pipeline can also bypass the Strait, transporting up to 1.8 million BPD to a terminal in the Gulf of Oman. However, these measures are insufficient to fully offset the disruption, and the closure continues to strain global supply chains. The U.S. has not prioritized reopening the Strait, with President Trump stating it would 'open up naturally' after U.S. military operations conclude. A 90-day closure could lead to a 2.9% quarterly GDP decline, according to a Federal Reserve Bank of Dallas study. Prolonged disruption risks further price spikes and economic contraction, with the global economy facing significant challenges as emergency stockpiles deplete and alternative routes reach capacity.