Trump’s Strait of Hormuz blockade risks new costs for the global economy - Shipping Australia
Shipping Australia Editor's note: this article was originally published on April 13, during the first blockade of the Strait of Hormuz by U. S. naval forces. However, as that the U. S. naval blockade has now been re-imposed on the Strait, the article has once again become particularly salient. The article below…
Shipping Australia Editor’s note:this article was originally published on April 13, during the first blockade of the Strait of Hormuz by U. S. naval forces. However, as that the U. S. naval blockade has now been re-imposed on the Strait, the article has once again become particularly salient. The article below is un-edited by Shipping Australia. Shipping Australia is re-publishing, with permission, this scholarly insight for the benefit of readers. We neither endorse nor condone the views expressed below, which are the opinion of the original author. For weeks now, the world economy has been on tenterhooks, waiting for one outcome:reopening the Strait of Hormuz. In response to war with Israel and the United States, Iran has effectively closed the narrow waterway, through whichabout a fifthof the world’s oil and gas normally passes. Some shipshave passed through the strait during the war, but largely on Iran’s terms, including byreportedly paying tollsfor safe passage. Opening the strait back up to all shipping traffic was akey conditionof the two-week ceasefire agreed to last week. But after “marathon” talks between the US and Iran failed to result in a deal on the weekend, US President Donald Trump used a Truth Social post toannouncea major escalation:Effective immediately, the United States Navy, the Finest in the World, will begin the process of BLOCKADING any and all Ships trying to enter, or leave, the Strait of Hormuz. US Central Commandlater confirmeda blockade on all Iranian ports would begin on April 13 at 10am eastern time in the US. The idea is to put severe pressure on the Iranian economy by restricting its exports, and force the country to allow all shipping through. But Iran – a major exporter of oil and gas –warnedthe global economy would pay. So, under pressure to get oil and gas flowing again, why is the US blockading the Strait of Hormuz? What impacts could this have on the world?Iran’s reliance on oilAccording to the International Energy Agency (IEA), Iran produced3. 59 million barrelsof crude oil per day in February (before war broke out). In 2025, global crude oil demand was about105 million barrels per day. That means Iran’s production accounts for about 3. 5% of global demand – significant enough to influence global oil economy. Iran’s economy is overwhelmingly dependent on oil and gas, especially crude oil, which accounted for57%of the country’s total export revenue in 2024. China is the main buyer, receiving about90%of Iran’s oil exports in 2024. Other buyersinclude Syria (3. 3%) and the United Arab Emirates (2%). Iraq, Turkey, Malaysia and Oman bought less than 1% of Iranian oil exports. Iran also exports petrochemicals products, such asmethanol, urea, polyethylene and ammonia. How the blockade will workUS Central Command has announced the blockade will target all vessels entering or departingIranian ports and coastal areas. Iran has11 major ports. Eight of them are to the south in the Arabian Gulf and Gulf of Oman regions and three in the Caspian Sea (north) for regional trade. Iranian ports located in these regions are set to be impacted by the targeted blockade. This includes the port in Kharg Island that handles about90% of the country’s crude exports. What will the impacts be?Oil prices roseagain on the news, having fallen when a ceasefire was announced last week. Trump isn’t planning a permanent blockade. As he stated in his Truth Socialpostannouncing the the move:At some point, we will reach an “ALL BEING ALLOWED TO GO IN, ALL BEING ALLOWED TO GO OUT” basis but Iran has not allowed that to happen […] No one who pays an illegal toll will have safe passage on the high seas. But it’s difficult to predict how long a blockade would last, how successful it would be, and the extent to which shipping would be affected. China will be impacted first, as the main buyer of Iran’s crude oil. The knock-on effects may create a chronic shortage of oil and contribute to higher oil prices in the global market. Adding to this, many Gulf countries typically import key materials and food products from Iran. For example, in 2022, theUnited Arab Emiratesimported mineral fuels, oils, distillation products, organic chemicals, iron and steel, copper and fertilisers from Iran. Oman and Qatar also import key materials and food products, such as steel, iron, construction materials, petrochemicals, agricultural products and fruits. Pressure on farmingUrea, a crucial fertiliser used for farming, deserves a special mention. Iran is a major producer of urea and is thelargest exporterin the Gulf region. Farmers around the world arealready under pressureas the conflict puts severe strain on global fertiliser supplies. Even if they don’t get fertiliser from Iran directly, countries such asBrazil, India and Australiacould be impacted from the flow-on effects of disruption to the fertiliser supply chain. A tense waitAfter failed peace talks, Trump says he is moving to stop Iran’s “world extortion” – referring primarily to charging ships for safe passage through the Strait of Hormuz. But the knock-on effects of a US blockade could create new costs for the global economy. For countries around the world, the unpredictability further strengthens the case for diversifying crude oil sources and investing in their own refining capability. In the longer term, greater adoption of renewable energy and electrification of transportation, manufacturing and logistics systems can help a country to become less reliant on oil. Sanjoy Paul, Associate Professor in Operations and Supply Chain Management, UTS Business School,University of Technology SydneyThis article is republished fromThe Conversationunder a Creative Commons license. Read theoriginal article.