EXPLAINER: Why is Strait of Hormuz so important for global economy?

The escalating war in Iran has ground tanker traffic through the Strait of Hormuz to a halt and oil prices have soared, highlighting the vital role the narrow passageway plays in global energy supply.

It's also disrupting the wider supply chain beyond oil, affecting everything from pharmaceuticals from India, semiconductors from Asia and oil-derived products like fertilizers that come from the Middle East.

Cargo ships are stuck in the Gulf or making a much longer detour around the southern tip of Africa. Planes carrying air cargo out of the Middle East are grounded. And the longer the war drags on, the more likely there will be shortages and price increases on a wide range of goods.

US President Donald Trump insisted gas price hikes would end when the war was over. Global oil prices have jumped 16 percent since Saturday. Concern is rising though, particularly after Iran warned it would disrupt transit through this vital waterway in retaliation, sending shockwaves through international markets.

Qatar's Energy Minister warned on Friday that if the war continued for a few weeks, "GDP growth around the world will be impacted" and would "bring down the economies of the world."

So what is happening and why is this stretch of water so important?

Where is the Straight of Hormuz?

It is one of the world's most crucial shipping routes, and its most vital oil transit choke point. It is bounded to the north by Iran and to the south by Oman and the United Arab Emirates (UAE), the corridor – which is only about 50km wide at its entrance and exit, and about 33km wide at its narrowest point – connects the Gulf with the Arabian Sea.

The strait is deep enough for the world's biggest crude oil tankers, carrying oil and gas from Saudi Arabia, Kuwait, Iraq, Qatar, Bahrain, the UAE and Iran.

The land-flanked passage lies in Iran's territorial waters, but is viewed as an international waterway and is normally open to all ships. It consists of two shipping lanes allowing traffic to pass in opposite directions, each 3.2km wide, with another 3.2km-wide lane separating them.

What passes through the Strait?

The Strait of Hormuz through history has been important for trade, with ceramics, ivory, silk and textiles moving from China through the region. In the modern era, it is the route for supertankers.

In 2025, about 20 million barrels of oil passed through the Strait every day, – that's nearly $600bn worth of energy trade per year. It amounts to a fifth of global oil consumption and up to a third of the world's supply of liquefied natural gas.

Around 3,000 shipping vessels pass through the passage every month, including oil tankers, liquefied natural gas containers, and cargo vessels, according to Lloyd's List.

While there are pipelines in Saudi Arabia and the UAE that can transport oil, alternatives for transit out of the region are limited.

Last month, Iran closed the Middle Eastern waterway for the first time since the 1980s as Iranian troops took part in live-fire military exercises. Oil prices jumped about 6 percent in the following days.

Is the Strait closed?

Thousands of seafarers are currently trapped on tankers in the Gulf. Some would argue the strait of Hormuz is effectively closed to shipping, although reports in Iran have cited an Iranian official saying it remains open. 

After war broke out on Saturday, Iran's Revolutionary Guards said it would "set ablaze" any western tanker attempting to transit the strait. Iran has attacked several ships in the Strait. At least nine vessels have suffered damage in the area since the conflict began.

Typically, about 100 tankers pass through the trade artery each day but marine traffic has evaporated as military aggression has increased and insurance costs have soared or cover has been withdrawn. 

About 200 tankers, which are not under sanctions are stranded in the strait, according to maritime data firm Lloyd's List, as well as hundreds of other vessels, leaving thousands of crew effectively trapped in a war zone.

Global shippers have issued service alerts saying they suspended operations in the area. Danish shipping company Maersk, the world's biggest shipping company, said on Sunday it had halted all vessel crossings in the Strait of Hormuz until further notice. 

About 3,200 ships, about 4 percent of global ship tonnage, are idle inside the Persian Gulf.

Any resolutions?

Trump said this week the US Navy would begin escorting tankers through the Strait of Hormuz "as soon as possible." He added he was ordering a government agency to offer "political risk insurance and guarantees" for the financial security of "ALL Maritime Trade, especially Energy, traveling through the Gulf."

China have called for an immediate de-escalation of the conflict. 

On Friday, Mao Ning, spokeswoman, Ministry of Foreign Affairs, said: "The Strait of Hormuz and its adjacent waters are important international corridors for cargo and energy trade. Maintaining security and stability in this region aligns with the common interests of the international community. 

"China urges all parties to immediately cease military actions, avoid further escalation of tensions, and prevent the regional turmoil from having a greater impact on global economic development."

Humanitarian concerns

The impact from actions in the Strait are clearly global. There are also impacts reaching far beyond economics. UN Secretary General Antonio Guterres is deeply worried about consequences in the Strait.

His spokesman Stephane Dujarric said on Thursday that most of the world was still very much addicted to fossil fuels.

"We all know, if as soon as the price of energy, of oil, of fossil fuels go up, it has a direct impact on just about everything, including UN operations," said Dujarric.

"Disruptions to airspace and transportation corridors continue to affect the movement of humanitarian supplies and personnel, as well as commercial goods. This puts supply chains at risk and could have broader implications for the availability and cost of essential food, fuel and medical supplies."

Outlook for the Strait

Inflation and higher prices at the gas pumps will certainly hit the pockets of everyday people across the world.  

The shock continues to ripple throughout Asian financial markets. South Korea's KOSPI index has fallen 18 percent this week, partly on fears the country's vast petrochemical and manufacturing sectors - both highly ⁠dependent on Middle ​Eastern energy - could be disrupted.

"The scale of what is at stake cannot be overstated," said UK-based investment management firm Neuberger Berman.

A partial slowdown lasting a week or two could be absorbed by oil companies, it said. But a full, or near full, closure lasting a month or more would push crude oil prices "well into triple digits" and European natural gas prices "toward or above the crisis levels seen in 2022."

The key question remains how long the war will last. 

Trump has indicated it could drag on for ​several weeks, but the global energy system may not be able to wait that long – even if his plans to reopen Hormuz prove successful.