What would happen if the Strait of Hormuz were permanently closed?

• Brent crude oil: breached USD 104 per barrel (May 10) • WTI crude oil: breached USD 102 per barrel (May 12) • China’s 92-octane gasoline: rose from CNY 7/L to CNY 8.9/L (nearly a 30% increase) Bloomberg Intelligence forecasts that, should the strait remain blocked, global crude and refined product inventories will hit emergency thresholds in approximately eight months. The U.S. has released 53.3 million barrels of strategic petroleum reserves—the second-largest release in history—yet it remains insufficient to curb soaring prices. The national average price for regular gasoline in the U.S. has surpassed USD 4.50 per gallon, the highest since July 2022. Some projections suggest that a permanent closure of the Strait of Hormuz could deplete global oil reserves within 8–12 months. The International Energy Agency (IEA) has revised its outlook: • Global crude demand in 2026 is now projected to decline by 420,000 barrels per day (bpd), up from an earlier forecast of only 80,000 bpd; • The global crude supply-demand gap stands at 1.78 million bpd. Crucially, rising oil prices are not the endpoint—but the starting point. As oil sits upstream of countless industries, cost increases gradually ripple outward—into manufacturing, transportation, agriculture, and beyond. Research indicates that every USD 1 increase in oil prices may raise China’s industrial production costs by 0.3%. The IEA warns: “Instability in the Strait of Hormuz will significantly impact global oil prices, industrial costs, and food security.” Secondly, accelerated shifts in shipping networks and energy systems—toward ‘de-Hormuz-ification’ On one hand, global shipping companies are seeking alternatives: 1. Overland detours: Shipping giants such as Germany’s Hapag-Lloyd now offer land-based connectivity services via Saudi Arabia and Oman. 2. Sea-land intermodal transport: Using transit ports like Salalah Port in Oman, followed by feeder vessels for final-leg delivery. 3. Pipeline transport: Saudi Arabia’s East-West Pipeline—which links eastern oilfields to the Red Sea port of Yanbu—is operating at full capacity, with a daily throughput of 7 million barrels. However, these alternative routes face constraints: limited capacity, unreliable transit times, and substantially higher costs. On the other hand, Middle Eastern countries are also pursuing countermeasures: 1. Iraq: The USD 24-billion “Development Road” project is underway, aiming to establish a new export corridor from the port of Al-Faw through Turkey to Europe—bypassing the Strait of Hormuz entirely. 2. Saudi Arabia: Expanding export capacity at the Red Sea port of Yanbu, targeting over 5 million barrels per day in exports. 3. UAE: Fujairah and Khor Fakkan ports have emerged as alternative hubs circumventing the Strait. 4. Iran: Controls the Strait of Hormuz and charges up to USD 2 million per vessel passing through—roughly 1–2% of cargo value. Meanwhile, the Hormuz crisis may accelerate the global energy transition: • Electric vehicles (EVs): China’s EV sector emerges as the “biggest winner amid oil shortages” (soaring oil prices → surging EV demand); • Renewable energy: Increased investment in solar and wind power; • Nuclear energy: Several countries are reviving nuclear energy plans. Ultimately, such transitions would erode the Strait of Hormuz’s strategic significance—if fully realized, the Strait itself could become obsolete.

Saudi Aramco: Even if the Strait of Hormuz reopens today, markets will struggle to recover immediately; delays of several more weeks would extend the supply shock into next year.

Saudi Aramco’s quarterly profit surged 26%, yet its CEO issued a stark warning: even if the Strait of Hormuz reopens immediately, it will take months for oil markets to return to normal; should the blockade persist for several more weeks, the supply shock will extend into 2027. On Sunday, Saudi Aramco reported first-quarter 2026 results, posting an adjusted net profit of USD 33.6 billion—up 26% year-on-year and exceeding analysts’ expectations of USD 31.2 billion. CEO Amin Nasser attributed this strong performance to the full-capacity operation of the East-West Pipeline. This pipeline reached its maximum throughput of 7 million barrels per day in Q1, bypassing the Iranian-blockaded Strait of Hormuz and delivering crude to Red Sea export terminals. In his statement, Amin Nasser said: “Our East-West Pipeline has proven itself a critical artery of supply, helping mitigate the impact of the global energy shock and supporting customers affected by shipping restrictions in the Strait of Hormuz.” Amin Nasser further warned: “If trade and shipping disruptions persist beyond several weeks, supply interruptions are expected to continue, and markets may not normalize until 2027.” Tensions in the Strait persist; fresh attacks occur Although a ceasefire agreement officially entered into force on April 8, friction continues into this weekend. According to CCTV, on May 10, the UAE Ministry of Defense issued a statement confirming that its air defense systems successfully detected and intercepted two drones launched from Iranian territory. The statement added that no casualties resulted from the incident. Also according to CCTV, Kuwait’s Armed Forces posted on social media on May 10 stating that several “hostile” drones had entered Kuwaiti airspace that day and had been “dealt with in accordance with established procedures.”

Aramco CEO Warns of 2% GDP Growth, >6% Inflation if Hormuz Disruption Continues

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Saudi Aramco's CEO warns that continued Hormuz Strait disruptions could cause global recession and high inflation exceeding 6%. The analysis emphasizes significant risks to the oil market and economic stability.

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