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A narrow stretch of water between Iran and Oman that roughly a fifth of the world's seaborne oil passes through. Because there is no easy alternative route, any threat to close it can spike oil prices — and news that it is reopening can bring them back down.
Why It Matters
The Strait of Hormuz is the single most important oil chokepoint on Earth. Tankers carrying crude from Saudi Arabia, the UAE, Kuwait, Iraq, and Iran all funnel through it. When conflict threatens the strait, traders price in the risk of lost supply and oil jumps; when a deal reopens it, that risk premium can unwind. It is the clearest real-world example of how a single geographic point can move global prices.
Key Points
- Roughly 20% of the world's oil supply transits the strait.
- There is no easy pipeline detour for most of that volume.
- Threats to close it raise oil's risk premium; reopening news can remove it.
Related Terms
Common Questions
A narrow stretch of water between Iran and Oman that roughly a fifth of the world's seaborne oil passes through. Because there is no easy alternative route, any threat to close it can spike oil prices — and news that it is reopening can bring them back down. The Strait of Hormuz is the single most important oil chokepoint on Earth. Tankers carrying crude from Saudi Arabia, the UAE, Kuwait, Iraq, and Iran all funnel through it.
The Strait of Hormuz is the single most important oil chokepoint on Earth. Tankers carrying crude from Saudi Arabia, the UAE, Kuwait, Iraq, and Iran all funnel through it. When conflict threatens the strait, traders price in the risk of lost supply and oil jumps; when a deal reopens it, that risk premium can unwind. It is the clearest real-world example of how a single geographic point can move global prices.
Roughly 20% of the world's oil supply transits the strait.
There is no easy pipeline detour for most of that volume.
Threats to close it raise oil's risk premium; reopening news can remove it.