The Global Oil Gamble in an Iran–Israel Showdown (Part 1)

I. INTRODUCTION

1. Escalating Iran–Israel Tensions

The conflict has seen a dramatic escalation since June 13, 2025, marking a shift from proxy warfare to direct military confrontation. Israel initiated strikes targeting Iran's nuclear facilities, ballistic missile programs, and energy infrastructure, including oil refineries and a fuel depot near Tehran.

Israel's military strategy has focused on dismantling Iran's nuclear and missile capabilities, with claims of destroying one-third of Iran's missile launchers, 50 aircraft, and over 20 missiles, achieving "full aerial superiority" over Tehran.

As of June 18, 2025, the conflict has entered its fifth day, with both sides exchanging strikes. Israel claims to have achieved aerial superiority over Tehran, while Iran has refused ceasefire talks, insisting on retaliation if attacked.

The conflict has had immediate economic repercussions, particularly on global oil markets. Israel's targeting of Iran's oil and gas sector has led to a surge in oil prices, with Brent crude futures up $2.14 (2.9%) to $76.37 a barrel and U.S. West Texas Intermediate crude futures up $2.03 (2.8%) to $75.01, reflecting fears of supply disruptions . This escalation is particularly concerning given the Strait of Hormuz's role as a critical chokepoint for oil shipments, potentially exacerbating global energy market volatility.

2. Strait of Hormuz as a Strategic Vulnerability

The Strait of Hormuz is a narrow maritime chokepoint between Iran and Oman that connects the Persian Gulf to the Gulf of Oman and Arabian Sea. Its strategic importance is difficult to overstate – about 20% of global oil consumption (roughly 20 million barrels per day in 2024) flows through this strait.  

It is the conduit for petroleum exports from major Gulf producers such as Saudi Arabia, Iraq, the UAE, Kuwait, and Qatar, as well as Iran itself. In addition, around one-fifth of the world’s liquefied natural gas (LNG) trade (mostly Qatari LNG) passes through Hormuz.

This creates a critical vulnerability: any disruption to Hormuz would sever a key artery of the global energy supply. Even the threat of closure has immediate market effects – during past crises, fears of Iranian interference in Hormuz have driven oil prices sharply higher in anticipation of potential supply shocks . Thus, as Iran–Israel tensions climb, attention has turned to Hormuz as a potential flashpoint with enormous economic repercussions.

II. STRAIT OF HORMUZ

1. Geography and Volume

The Strait of Hormuz is a narrow seaway only about 33 km wide at its choke point, flanked by Iran to the north and the Arabian Peninsula (Oman and the UAE) to the south. It is the only sea passage from the Persian Gulf to the open ocean, making it one of the world’s most important energy chokepoint.

In 2024, an average of 20 million barrels of crude oil and petroleum liquids passed through Hormuz each day.

This equates to roughly one-fifth of global daily oil consumption and nearly one-third of all seaborne oil trade. Additionally, the strait handles about 20% of the world’s LNG shipments, primarily from Qatar’s massive gas exports. The Strait of Hormuz has no viable maritime bypass. Pipelines like Saudi Arabia’s East-West Pipeline (5 million b/d) and the UAE’s Fujairah pipeline (1.5 million b/d) can divert only 3.5 million b/d, far below the strait’s 21 million b/d. These pipelines are vulnerable to sabotage, and land routes through conflict zones are impractical.

Such volumes make Hormuz the “aorta” of the world’s energy economy – the lifeline through which Asian economies (China, India, Japan, South Korea) receive much of their oil, and a critical supply route for global markets at large. The geography of Hormuz (with shipping lanes squeezed between Iran’s southern coast and Omani exclave of Musandam) means any military conflict in the area could directly threaten passing tankers.

Oil-Producing Nations Gulf nations and Iran would suffer:

• Saudi Arabia: Exports 6-7 million b/d via the strait. A blockade would slash revenue.

• UAE, Kuwait, Qatar, Iraq: Reliant on the Strait of Hormuz, their economies would collapse.

• Iran: Halting its oil exports would lose 8% of GDP, risking instability.

2. Dependence of Key Oil Exporters

Virtually all major Persian Gulf oil producers depend on the Strait of Hormuz to get their crude to market. Saudi Arabia, the world’s largest oil exporter, typically ships 5–7 million barrels per day of its exports through Hormuz.

In fact, Saudi oil constituted about 38% of the Hormuz crude flow in 2024 . Iraq’s primary export route is via its Persian Gulf terminals, meaning almost its entire ~4 million b/d of oil exports must transit Hormuz. Other Gulf states – Kuwait, the UAE, and Qatar – likewise rely on this sea lane for the vast majority of their exports.

Qatar’s dependence is especially high for LNG; roughly one-fifth of global LNG trade (which includes much of Europe’s and Asia’s supply) goes through Hormuz. 

Even Iran’s own oil exports (which have rebounded in recent years despite sanctions) leave via Hormuz to reach customers in Asia. In short, the economies of Gulf oil exporters are inextricably tied to this strait – a blockage would choke off their export earnings almost entirely. There is also downstream dependence: refineries and consumers worldwide rely on the steady flow of Gulf oil. Asian economies are most exposed: China gets about 25% of its crude imports via Hormuz, and India about 40%.

Japan and South Korea similarly import large volumes through the strait, as do countries like Singapore and Taiwan. Thus, both producers and consumers have a shared stake in Hormuz remaining open.

3. Lack of Effective Alternatives

There are few, if any, viable substitutes for the Strait of Hormuz as an export route. Geographically, the Persian Gulf is a cul-de-sac – without Hormuz, tankers cannot reach the Indian Ocean. A handful of oil pipelines circumvent the strait, but their capacity is limited. Saudi Arabia operates its East–West Pipeline across the kingdom to a Red Sea port, with a nameplate capacity of about 5 million b/d (briefly expanded to 7 million b/d in 2019).

The UAE has a pipeline from Abu Dhabi to Fujairah (on the Gulf of Oman) capable of around 1.5–1.8 million b/d . However, these pipelines are not fully redundant: they usually run below maximum capacity and could likely handle only an extra ~2.6 million b/d in an emergency – a small fraction of the ~20 million b/d that normally transits Hormuz.

Iran has even fewer options; its new Goreh–Jask pipeline to the Oman Sea is designed for 1 million b/d but is currently handling only tens of thousands of barrels per day.

Other theoretical routes (like trans-Saudi or Iraq-to-Turkey pipelines) are constrained by conflict and underinvestment. In summary, “most volumes that transit the strait have no alternative means of exiting the region” . If Hormuz is closed, more than 90% of Gulf oil exports would effectively be stranded. The lack of alternate routes heightens the strategic leverage of the strait – and the severity of consequences should it be disrupted. Moreover, any overland pipelines are themselves vulnerable to sabotage or airstrike in a wartime scenario , meaning they are not fail-safe. This paucity of alternatives is why energy markets view Hormuz as an Achilles’ heel for global oil supply security.

III. Iran–Israel Conflict

1. Escalation Pathways

How might a conflict between Iran and Israel lead to a Hormuz crisis? 

Several escalation scenarios are conceivable. One is a direct Israeli strike on Iranian soil – for instance, an attack on Iran’s nuclear facilities or military bases. Israel has openly warned it will act militarily to prevent Iran from obtaining nuclear weapons, and there is precedent in its past strikes on nuclear reactors in Iraq and Syria. If Israel were to carry out major strikes on Iran (such as the scenario of October 2024, where Israel hit Iranian nuclear sites ), Iran would almost certainly retaliate forcefully. Iranian retaliation could take the form of missile salvos targeting Israeli cities or U.S. bases in the Gulf, drone and rocket attacks via proxy militias, or direct confrontation in regional waterways.

Notably, Iran possesses an arsenal of short- and medium-range ballistic missiles capable of reaching Israel and all of the Gulf – in a 2024 wargame scenario, Iran launched over 200 missiles after an Israeli strike.

Another pathway is an uncontrolled spiral of proxy conflicts: for example, clashes in Syria or Lebanon (with Hezbollah involvement) could ignite a broader Iran–Israel exchange. 

=> As the conflict widens, Iran might seek to exert pressure by targeting not only Israel but the global economy – and closing Hormuz is the most potent economic weapon in its arsenal. In essence, any severe military confrontation that puts the Iranian regime in danger (or under “existential” attack) could trigger Tehran to consider drastic measures like mining the Strait or attacking ships, even if that means global fallout.

2. Iran’s Use of the Strait as Leverage

Tehran has long viewed the Strait of Hormuz as a strategic ace-in-the-hole – a means to retaliate against Western pressure or deter attacks by threatening a global oil shock. Iranian officials have explicitly threatened to close Hormuz during past crises. For example, in late 2011, as U.S. and EU sanctions tightened around Iran’s oil exports, Iran’s vice president warned that “not a single drop of oil will pass through the Hormuz Strait” if Iran’s oil was banned.

Similar threats were voiced in 2018 after the U.S. withdrew from the nuclear deal, and in early 2020 amid U.S.–Iran confrontations . Although Iran has never carried out a full closure, these statements are a form of coercive diplomacy – signaling that Iran could inflict severe pain on the world economy if pushed into a corner.

Historically, Iran has used asymmetric tactics around Hormuz to exert leverage without outright closure. During the 1980–1988 Iran–Iraq War, the so-called “Tanker War” saw Iran (and Iraq) attacking each other’s oil shipments in the Gulf, prompting U.S. naval escorts to protect neutral tankers.

More recently, Iran has seized or sabotaged vessels to retaliate against its adversaries or demonstrate its reach. The July 2019 capture of the Stena Impero (a UK-flagged tanker) by Iran’s Revolutionary Guard was in direct response to a British seizure of an Iranian oil tanker, showcasing Iran’s willingness to target commercial shipping.

Iran’s navy and the IRGC Navy regularly conduct drills in the Hormuz area and have developed plans to rapidly lay sea mines or deploy swarms of attack boats to impede transit. In short, Iran leverages Hormuz as a pressure valve: in times of crisis, it can threaten this chokepoint to gain bargaining power or retaliate against superior military powers. This leverage is a cornerstone of Iran’s asymmetric strategy, especially as it faces Israel’s advanced military and U.S. forces in the region.

3. Proxy Warfare Spillover

An Iran–Israel conflict would not occur in isolation – it would almost certainly draw in a web of allied militant groups and proxy forces across the Middle East. This increases the risk of spillover into vital shipping lanes. One concern is the role of the Houthi rebels in Yemen (aligned with Iran): the Houthis have previously attacked oil targets and vessels in the Red Sea and Bab al-Mandeb strait. In 2019 and again in 2021, they used missiles and drones against oil tankers and Saudi shipping near the Red Sea, showing capability to disrupt alternative routes outside Hormuz. Iran could encourage the Houthis to strike ships in the broader region as a form of indirect pressure, effectively opening a second front in the maritime domain.

Likewise, pro-Iranian militias in Iraq could target pipelines or Gulf oil infrastructure. For instance, Iranian-linked groups have fired rockets at oil facilities in Iraq and Saudi Arabia in the past, and in a January 2024 scenario, Iran was said to have covertly attacked oil production in Iraq to tighten global supply. 

Hezbollah in Lebanon primarily threatens Israel directly, but in a wider war it could divert Israel’s focus by opening a northern front, thereby indirectly giving Iran more leeway elsewhere. Overall, Iran’s network of proxies – from Hezbollah and Hamas to Iraqi Shia militias and the Houthis – provides it with unconventional avenues to cause chaos. They could sabotage shipping, attack ports, or target energy infrastructure in the Gulf and beyond. This proxy factor means a conflict could expand beyond the immediate Iran-Israel theater, endangering shipping lanes not only in Hormuz but also the Red Sea and even the Eastern Mediterranean. International waterways could become arenas of asymmetric warfare, complicating efforts to keep oil flowing freely.