The world is currently going through a phase of global energy security crisis, where the situation in the Strait of Hormuz is not only affecting oil supply but also the economic stability of the entire world. The Strait of Hormuz connects the Persian Gulf to the Arabian Sea and is a critical chokepoint for global oil and LNG trade. Following the recent US-Israel attacks, Iran has effectively blocked this route, causing oil prices to surge and increasing instability in the global economy.
Let us understand why this waterway is so important for the global economy and what impact this crisis is having.
What’s Happening?
The Strait of Hormuz is located to the north of Iran and to the south of Oman and the United Arab Emirates, and its entrance and exit span up to 50 kilometres. This route is wide enough for the world’s largest crude oil tankers.
After the US and Israel attacks on February 28, 2026, Iran has effectively closed this waterway. It has threatened to attack tankers, laid naval mines, and carried out strikes using high-speed boats. As a result, traffic on this route, which usually sees around 3,000 ships passing every month, has nearly come to a halt. Since the start of the conflict, only 21 tankers have been able to pass. Attacks have been reported on at least 15 to 21 ships, involving drones, missiles, and naval mines. Iran has also sent radio warnings to ships, asking them not to pass through the route.
Importance of the Strait of Hormuz in Global Oil Trade
This waterway is the backbone of global energy trade. In 2025, approximately 20 million barrels of oil and oil products passed through it daily, accounting for nearly 20% of global oil and LNG supply. According to estimates, it contributes around 20–25% of global crude oil supply. Major producing countries such as Saudi Arabia, UAE, Iraq, Kuwait, Qatar, and Iran export most of their oil and LNG through this route.
From here, in 2024, Qatar exported 9.3 billion cubic feet of LNG daily, while the UAE exported 0.7 billion cubic feet, together accounting for about 20% of global LNG trade.
In addition, one-third of the world’s fertiliser trade and 45% of sulfur exports also pass through this route. Annual energy trade worth $600 billion takes place through this corridor. Any disruption here can reduce supply by 8–10 million barrels per day.
Impact on the Global Economy and Oil Prices
This blockage has directly impacted the global economy. Before the conflict, WTI oil was around $60–67 per barrel, but it has now surged to nearly $100. Brent crude rose above $82 and later settled around $79.
According to the Dallas Fed model, if this blockage continues for one quarter, global real GDP growth could decline by 2.9% points in the second quarter, with oil prices reaching around $98. In a two-quarter scenario, prices could rise to $115 in the third quarter and ease to $76 in the fourth. If the disruption lasts for three quarters, prices could go up to $132 by the end of the year.
The IEA has decided to release 400 million barrels of oil from emergency reserves. Consumers are already facing inflation in petrol, jet fuel, and other products. Airlines are increasing fares, and global supply chains are getting disrupted.
What Does This Mean for Investors?
This crisis presents both risks and opportunities for investors. The sharp rise in crude oil prices has increased volatility in energy stocks. In oil-importing countries like India, the import bill increases by $2 billion annually for every $1 rise in crude prices, creating pressure on the rupee, inflation, and bond yields. A 2.9% point drop in global GDP could also impact equity valuations.
At the same time, the ongoing corrections in global and Indian stock markets show no clear signs of stopping. However, this phase may also offer long-term investors an opportunity to accumulate quality stocks at better valuations.
What’s Next?
Going forward, the situation will largely depend on negotiations between Iran, India, and China. Saudi Arabia can divert 4–5 million barrels per day of oil to the Red Sea via the East-West pipeline, while the UAE can redirect 1.5 million barrels to Fujairah port, although some of these routes have also faced attacks.
If the Strait of Hormuz reopens within one to two weeks, prices may stabilise. However, there could still be a lasting impact on global GDP in the long term. India has managed to move two LPG tankers through the route, and further discussions are ongoing.
Overall, this crisis highlights the vulnerability of global energy security and reinforces the need for diversification in energy sources. Investors should remain cautious and make decisions based on thorough research.
Disclaimer: This article is for educational and informational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. The companies mentioned are cited as examples within the context of market developments. Investors are advised to conduct their own due diligence and consult their financial advisor before making any investment decisions.
Investments in the securities market are subject to market risks. Read all related documents carefully before investing.
