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| The U.S.'s direct involvement in the Middle East conflict has intensified risk-off sentiment. On the 23rd, the Korean won weakened by nearly 10 units against the dollar, and the KOSPI fell by almost 1%, slipping below the 3,000 mark. |
Tensions in the Strait of Hormuz: Could the Oil Lifeline Be Cut Off?
As reciprocal airstrikes between Israel and Iran escalate, all eyes are now turning to one of the most strategic chokepoints in the world — the Strait of Hormuz. The critical question: will the conflict spread to this narrow waterway, and if so, what happens to global oil flows?
While disruptions to Iran’s own oil production — as the world’s fifth-largest oil exporter — are concerning, the real nightmare scenario is the potential closure of the Strait of Hormuz. Should tankers be blocked or delayed, the global energy market could be thrown into chaos.
What Makes Hormuz So Critical?
Tucked between Iran and the Arabian Peninsula at the mouth of the Persian Gulf, the Strait of Hormuz spans just 55 to 95 kilometers in width. It is the only sea passage from the oil-rich Gulf states to the Arabian Sea and, ultimately, to the rest of the world. Every day, around 21 million barrels of oil, or about one-fifth of global supply, pass through this narrow channel.
For countries like Saudi Arabia, Iraq, Qatar, Kuwait, the UAE, and Oman — which collectively hold some of the world’s largest oil and gas reserves — the Strait of Hormuz is not just important. It is essential. Iran knows this and has often used the threat of closing the strait as leverage during geopolitical disputes.
While Saudi Arabia and the UAE have developed alternative pipelines that bypass Hormuz, their capacity is limited to around 2 million barrels per day, far short of the volumes shipped through the strait.
Northeast Asia Would Be Hit Hardest
Should Iran carry through on its threat and close off the Strait of Hormuz, Northeast Asian economies like South Korea, Japan, and China would be among the hardest hit due to their heavy dependence on Middle Eastern oil.
South Korea, for example, had reduced its Middle Eastern oil dependence to the mid-50% range in the past through diversification efforts. But in recent years, that number has rebounded to over 70%.
According to the Korea National Oil Corporation, South Korea’s Middle Eastern oil imports were 59.8% in 2021, rising to 67.4% in 2022, 71.9% in 2023, and 71.5% in 2024. Between January and April this year alone, 71.1% of imported crude came from the Middle East.
Although South Korea no longer imports oil from Iran due to U.S. sanctions, the Arabian Gulf countries — especially Saudi Arabia (33.6%), UAE, Iraq, and Kuwait — remain its main suppliers. Even the U.S., while second in volume, still trails well behind these Middle Eastern exporters.
China’s Backdoor Iranian Crude Might Also Dry Up
China, Iran’s top oil customer, has managed to sidestep U.S. sanctions by importing Iranian crude through third countries like Malaysia. According to a Hanwha Investment & Securities report, Iran’s oil production has nearly recovered to pre-sanction levels, exporting 1.56 million barrels per day in 2023 — more than 90% of it to Chinese refiners.
But that supply chain is now at risk. As the conflict with Israel intensifies and Iranian oil infrastructure comes under threat, the price advantage China enjoys from cheap Iranian oil could evaporate. In fact, Iran’s exports to China have already dropped to about 1.1 million barrels per day, a 20% decline compared to the same period last year.
Will Iran Actually Close the Strait?
Despite the rhetoric, many experts believe that a full-scale closure of the Strait of Hormuz is highly unlikely.
Choi Jin-young, an analyst at Daishin Securities, points out that while Iran has repeatedly threatened to close the strait, it has never acted on it. Given Iran’s domestic economic struggles — including high unemployment — and the fact that 85–90% of Iran’s own trade depends on sea transport, closing the strait would amount to economic self-sabotage.
There’s also the risk of alienating allies like Iraq and Qatar and provoking retaliation from the U.S. military. Moreover, as a signatory to the 1958 Geneva Convention on the Law of the Sea, Iran is technically bound to uphold innocent passage through international straits.
Oil Prices Could Still Soar
While JPMorgan also considers a blockade unlikely, it warns that if it does happen, oil prices could skyrocket to $120–130 per barrel, triggering a global economic shock.
In short, the Strait of Hormuz remains the world’s most sensitive oil artery — a point of immense strategic leverage for Iran, but also one of immense risk. As long as tensions between Tehran and Tel Aviv continue to flare, markets will remain on edge.
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