Strait of Hormuz: What is it and why is it important?

It is estimated that up 20% of global oil moves through the Strait of Hormuz, a narrow stretch between Oman and Iran.  

Given its importance as a key oil chokepoint, and the on-going Israel-Iran war, closure of this narrow strait would throw global energy markets into a tailspin, warn energy experts.

The waterway, only 33-km wide at its narrowest, is vulnerable to disruption. And any disruption of the strait would have a huge knock-on global economic consequences.

Here’s what you need to know about the Strait of Hormuz:

Where is it?

The Strait of Hormuz lies between between the Omani Musandam Peninsula and Iran. 

Despite being just 33km wide at its narrowest, it’s deep and wide enough to accommodate the world’s largest crude oil tankers. The Strait is deep and relatively free of maritime hazards. Its depth is greatest near the Musandam Peninsula.

Fully-laden very-large crude carriers (VLCCs) could safely navigate through most of the Strait.

Why is the Strait of Hormuz important?

The Strait is one of the world’s most critical oil chokepoints. In 2023, around 20.9 million barrels of oil per day — roughly 20% of global petroleum liquids consumption — passed through it.

Beyond oil, it's also vital for global container trade. Major nearby ports serve as transshipment hubs for cargo bound for the Middle East, South Asia, and East Africa.

Why are shipping groups avoiding the Strait of Hormuz now?

The latest escalation between Israel and Iran, including a surprise Israeli strike on Iran’s military and nuclear sites, has sparked several days of intensifying conflict.

This has raised alarms in the shipping industry.

Bimco, the world’s largest shipping association, told CNBC that a “modest drop” in vessel traffic is being observed, with some shipowners choosing to avoid the strait entirely due to safety concerns.

How has the Israel-Iran conflict affected freight costs?

Freight rates spiked after the latest Israeli attacks:

• Tanker freight rates from the Mideast Gulf to China jumped 24% in a single day to $1.67 per barrel, the largest daily increase of 2025 so far.

• According to data from Kpler, this highlights the perceived risk in the area.

While the war risk premium for insurance hasn’t changed yet, analysts suggest further rate hikes are possible if instability continues.

What’s happening to shipping insurance rates?

So far, insurance rates have remained stable.
David Smith, head of marine liabilities at McGill and Partners, noted that although there haven’t been increases yet, things could change fast. “War quotes” are now valid for only 48 hours, allowing insurers to adjust premiums in real time based on risk.

What do shipping companies say about future plans?

Hapag-Lloyd, a major German shipping line, described the threat level at the Strait as “significant”, but said there’s no immediate risk to maritime operations.

However, the company acknowledged the volatile situation and said it could change “in a very short” time.

Hapag-Lloyd also confirmed it has no plans to resume transit through the Red Sea, having avoided the route since late December 2023.

What could happen if the Strait of Hormuz is closed?

A closure — even temporarily — could:

• Cause a global spike in oil prices

• Delay shipping timelines significantly

• Raise insurance premiums and crew wages

• Lead to major rerouting of both oil tankers and container ships

Timeline: Blockade & tension

Major incidents and blockades involving the Strait of Hormuz, one of the world’s most strategically vital waterways:

1980–1988: Iran–Iraq War (“Tanker War”)

• What happened: Iran and Iraq targeted oil tankers from each other and third-party countries.

• Impact: Over 400 ships were attacked. The US Navy began escorting Kuwaiti oil tankers under Operation Earnest Will.

• Effect on Strait: While never officially closed, it was a high-risk zone.
  

1988: US shoots down Iran Air Flight 655

• Date: July 3, 1988

• What happened: A US Navy cruiser shot down a civilian Iranian airliner over the Strait, killing all 290 aboard.

• Fallout: Intensified US–Iran hostility. Tehran scaled down tanker threats after this event.
  

2008: US-Iran Naval Confrontation

• Date: January 2008

• What happened: Five Iranian speedboats harassed U.S. warships in the Strait.

• Impact: Tensions rose, but no shots fired. A warning of Iran’s ability to disrupt shipping.
  

2011–2012: Iranian Threat to Close the Strait

• Trigger: U.S. and EU sanctions targeting Iran’s oil exports.

• Iran’s response: Threatened to block the Strait if oil exports were stopped.

• Result: No closure occurred, but global oil prices spiked.

2019: Tanker Seizures and Attacks

• May–July 2019 events:

  • Several oil tankers were attacked with mines or drones.

  • The UK seized an Iranian tanker near Gibraltar; Iran responded by seizing a UK-flagged ship in the Strait.

2021–2023: Periodic skirmishes

• Iran and the U.S. engaged in cat-and-mouse naval games.

• Iran occasionally seized or harassed oil tankers over sanction-related disputes.

2024–2025: Israel–Iran escalation

• 2024–25: Following Israeli strikes on Iranian nuclear sites, Iran mobilised naval forces near the Strait.

• June 2025: Shipping groups began rerouting to avoid the area, raising freight costs and global concern — though not a formal blockade.