Why This Narrow Strait Next to Iran Is So Critical to the World’s Oil Supply

Why This Narrow Strait Next to Iran Is So Critical to the World’s Oil Supply


Most tankers that left the Persian Gulf from May 15 to June 15 were headed to ports in Asia.

Twenty percent of the global oil supply flows through the Strait of Hormuz, a narrow stretch of water that separates Persian Gulf countries like Iran, Iraq and Kuwait from the rest of the world. From May 15 to June 15, more than 1,000 tanker ships traveled the strait. Many were destined for places as far away as China and South Korea.

The gulf region has been rocked by instability in recent months, threatening the flow of oil through the strait. Six tankers have been attacked since May amid escalating tensions between Iran and the United States.

In the past year, the United States has imposed new sanctions on Iran meant to cripple the country over its nuclear program. Some of the measures have targeted the country’s oil exports, long the lifeblood of its economy. Iran, in defiance, has said it would begin to enrich uranium at higher levels as soon as Sunday.

If tensions persist, disruptions along the strait, where the shipping channel is barely two miles wide, could be felt in India, China and dozens of other countries that buy Middle Eastern oil in large quantities.

Consumption by Asian countries surged as the global economy improved



Million barrels a day of

petroleum and other liquids

(ranked by 2016 data)

million barrels a day of

petroleum and other liquids

(ranked by 2016 data)

Source: U.S. Energy Information Administration

In the past two decades, oil consumption has exploded in countries like China and India, where expanding middle classes have driven large-scale economic growth. China’s demand for oil has nearly tripled over that period. During that time, the United States has remained the world’s biggest consumer of oil, going through tens of millions of barrels a day.

The U.S. has come back as a global oil player, reducing its reliance on foreign oil



million barrels a day of total petroleum liquids

million barrels a day of total petroleum liquids

Source: U.S. Energy Information Administration



Top crude oil exporters in 2018

Millions of

barrels a day

Top crude oil exporters in 2018

Millions of

barrels a day

Sources: OPEC; U.S. Energy Information Administration

A recent shale-drilling boom in the United States has caused the production of oil and gas in the country to skyrocket, making America less dependent on imports and allowing it to reclaim its role as a leader in the global energy industry. Oil production in the United States grew an extraordinary 17 percent last year.

The surge has changed the dynamics of the world’s oil market, which has long taken its cues from OPEC, the cartel of oil producers that includes Saudi Arabia, Venezuela and Iran.

In previous eras, attacks in the Strait of Hormuz would have sent the price of oil spiraling down. The oil market’s response to the recent tanker attacks has been muted, in part because of how much oil now comes from the United States.

The American sanctions have decimated Iran’s oil exports




million barrels of crude oil a day

Iranian annual oil exports

Previous sanctions in effect

Iran “nuclear” agreement

million barrels of crude oil a day

Iranian monthly oil exports

million barrels of crude oil a day

Iranian annual oil exports

Previous sanctions in effect

Iran “nuclear” agreement

million barrels of crude oil a day

Iranian monthly oil exports

Iranian monthly oil exports

Iranian annual oil exports

million barrels of crude oil a day

million barrels of crude oil a day

Previous sanctions in effect

Iran “nuclear” agreement

Source: OPEC

As its reliance on Middle Eastern oil has decreased, the United States has found itself in a stronger position when dealing with countries like Iran.

After the Trump administration pulled out of the Iran nuclear deal last year, the United States began to tighten its sanctions on the country. The measures, although not adopted by all nations, allow the United States to punish companies and countries that engage in trade with Iran.

Some countries were initially granted waivers under the sanctions, but many have stopped buying oil from Iran to avoid the risk of being punished by the United States. As a result, Iran’s exports have plummeted.



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