The Strait of Hormuz connect the Persian Gulf al Gulf of Oman and the Indian Oceanwith Oman to the south and Iran to the north. Approximately 20% of the world’s oil and liquefied gas (LNG) passes through this maritime passage, 167 km long and approximately 33 km narrow, every day, with exports of raw materials mainly coming from Iran, Iraq, Qatar, Kuwait, Saudi Arabia and the United Arab Emirates (UAE). The main importers of Iranian oil and gas are Asian countries: mainly China, India, Japan and South Korea. Let’s see in detail what the direct consequences of its closure are on the energy supply of these countries.
Most of the oil and liquefied natural gas (LNG) imported from Middle Eastern countries such as Iran, Iraq, Qatar, Saudi Arabia, Kuwait and the United Arab Emirates (UAE) do not have alternative maritime routes and therefore any crisis or interruption of supplies via this passage has strong repercussions on the markets, mainly Asian ones. As for Europe, although since 2022 several European countries (mainly France, Germany, Italy, the Netherlands and Belgium) have increased their purchases of LNG from Qatar, the latter have greater diversification in their suppliers, also importing LNG from Africa, the United States and Norway. The Strait of Hormuz is crucial for both geographical and economic reasons. From a geographical point of view, it represents the only natural outlet for almost all the producing countries in the region from the Persian Gulf to the Ocean, as there is no other natural maritime passage that allows it.
Some Gulf countries have tried to find alternative routes but from the point of view of volumes of raw materials the Strait of Hormuz remains crucial: Saudi Arabia, for example, also uses an oil pipeline that reaches the port of Yanbu, in the Red Sea, diverting part of Saudi exports into this channel. In other cases, such as Qatar, there is no alternative pipeline that can transport LNG without passing through the Strait of Hormuz. In fact, there are neither alternative land pipelines to Asian countries nor liquefaction terminals outside the Gulf; remember that the main one is Ras Laffan, managed by QatarEnergy. Just yesterday, following some military drone attacks, the company announced the temporary interruption of LNG production in Ras Laffan.
In addition to geographical reasons, the construction of new alternative routes to Hormuz would imply the investment of tens of billions and the construction of oil pipelines of thousands of kilometers, a less viable option both in terms of economic resources and timing.
The main cross-Strait exporting countries
The countries that use the Strait of Hormuz for oil and LNG exports are mainly:
- Iran: represents one of the main exporters of crude oil and, although to a lesser extent, gas
- Saudi Arabia: it is the largest oil exporter in the region using this shipping route
- Iraq: together with Iran it represents one of the main exporters of crude oil
- United Arab Emirates: Via the Strait of Hormuz, the UAE exports oil and gas
- Qatar: the country is one of the world’s largest exporters of liquefied natural gas (LNG) which passes through Hormuz, also a supplier to numerous European countries, including Italy
- Kuwait: mainly exports oil across the Strait
Ships carrying LNG and oil tankers passing through this sea passage head towards the Gulf of Oman, from which they then head towards Asia, Europe and North America, most of them headed towards China, India, Japan and South Korea.
The main importing countries across the Strait
China
China is one of the largest importers of oil from Iran through the Strait of Hormuz: it is estimated that around 90% of Iranian oil exports are directed to the country, passing through the Indian Ocean and arriving in the South China Sea. Already in ancient times, the Strait of Hormuz was used for the trade of ceramics, ivory, silk and textiles from China passed through the region. A closure of Hormuz would put a strain on China’s energy security: nearly 30% of its LNG imports come from Qatar and the United Arab Emirates, and about 40% of its oil imports pass through Hormuz, according to UBP estimates. Unlike other countries, however, despite being very exposed, China has reserves and alternative sources that provide a certain margin of safety. China’s LNG inventories at the end of February were around 7.6 million tonnes, providing a short-term hedge. However, if the closure of Hormuz and thus the energy disruption were to continue, the dynamic could intensify price competition across Asia. Despite this, China is not the most vulnerable country to potential supply shocks.
India
India is a major importer of LNG and crude oil, with ships crossing the Indian Ocean from Hormuz arriving in the Bay of Bengal. At the same time, India, unlike China, is a vulnerable player in this situation: 60% of India’s oil imports come from the Middle East and more than half of its LNG imports are in fact linked to the Gulf and a significant part is indexed to Brent, one of the main global benchmarks for determining the price of crude oil. Its price is influenced by the supply and demand of crude oil but also by geopolitical situations, particularly in the Middle East. This means that a spike in crude oil caused by the Hormuz shutdown would simultaneously increase oil import costs and LNG contract prices.
Japan and South Korea
Japan and South Korea Practically import all the oil from the Middle East and much of it through the Strait of Hormuz. The route to Japan of ships passing through Hormuz crosses the Indian Ocean towards the Pacific through the Strait of Malacca. According to UBP, the Middle East supplies 75% of Japan’s oil imports and about 70% of South Korea’s. As for LNG, 14% of South Korea’s LNG comes from Qatar and the United Arab Emirates, while Japan imports about 6%. Economies that have a high dependence on energy imports, such as Japan, South Korea and Taiwan, are therefore more exposed to supply shocks. South Korea, for example, unlike China, also has limited reserves and its net oil imports represent 2.7% of GDP, being one of the most vulnerable countries in the region in this context.
Europe
To a lesser extent, Europe is also affected by this energy crisis: the route of oil tankers bound for Europe passes through the Cape of Good Hope towards the Atlantic Ocean, then entering the Mediterranean Sea. Compared to Asian countries, however, Europe is less exposed: LNG, directed to Italy, Belgium, the Netherlands, France and Germany, mainly comes from Qatar, which supplies on average 10–15% of European LNG. What passes through the Strait of Hormuz is approximately 3-6% of the total gas consumed by the European Union. Due to the diversification of suppliers (United States, Norway, West Africa and Algeria), Europe is therefore less vulnerable to this crisis. As far as crude oil is concerned, however, Europe is dependent estimated at around 10–15% of importsand therefore direct consequences could be seen mainly in the volatility or increase in prices rather than on physical supplies.
