Tehran may raise the prices of Oil and LNG. Know the details; Oil and LNG prices could rise if Iran blocks the Strait of Hormuz. It will affect countries like India. The reason behind it is that India imports crude oil from Saudi Arabia, Iraq, and UAE. This could lead to inflation. Tehran effect The Iran-Israel conflict has intensified. Recently, Iran launched drone and rocket attacks on Israel. It responded with a missile strike. Crude oil prices have been around $90 per barrel during the conflict. Motilal Oswal Financial Services mentioned that while efforts to calm the situation may help, oil and LNG prices might increase if Iran closes the Strait of Hormuz. The Strait of Hormuz is a narrow passage between Oman and Iran, only 40 km wide at its narrowest point. It serves as a crucial route for exporting crude oil from countries like Saudi Arabia, the UAE, Kuwait, Qatar, Iraq, and Iran. In 2022, 21 million barrels per day, or 21% of global oil consumption. It passed through the strait. Additionally, around 20% of global LNG trade, including most exports from Qatar and the UAE, goes through this route. The strait of Hormuz The Strait of Hormuz is located between Oman and Iran. It serves as a narrow sea passage. At its narrowest point, it spans approximately 40 km wide, with 2 km of navigable channels for ships entering and exiting. This strait plays a crucial role in the exportation of crude oil by various countries, including Saudi Arabia, the UAE, Kuwait, Qatar, Iraq, and Iran. Importance of the strait of Hormuz In fact, it facilitates the transportation of around 6.3 million barrels per day from Saudi Arabia alone, along with significant amounts from other nations.
In terms of global oil consumption, the oil flow through the Strait accounted for 21 million barrels per day in 2022. It represents 21 percent of the total.
Additionally, it serves as a vital route for global liquefied natural gas (LNG) trade, with approximately 20 percent of such trade passing through it. Notably, the majority of LNG exports from Qatar and the UAE rely on this passage.
Alternatives of the strait of Hormuz
While alternative routes exist for oil shipments via the Red Sea, no such alternatives are available for LNG transportation.
This poses a significant concern, particularly for countries like India. It is heavily depend on overseas suppliers for both crude oil and LNG.
India imports oil from Saudi Arabia, Iraq, and the UAE, as well as LNG from Qatar, all of which pass through the Strait of Hormuz.
In the unfortunate event of a blockade in the Strait, it is anticipated that there would be a substantial impact on crude oil prices, refining margins, and spot LNG prices. No alternative routes do exist. They would only be able to accommodate a fraction of the current volume passing through the Strait. It is estimated to be around 7-8 million barrels per day of crude oil and refined products. Moreover, utilizing these alternative routes would come with elevated freight costs.
