The Strait of Hormuz

The Strait of Hormuz connects the Persian Gulf to the Gulf of Oman and the open ocean. At its narrowest it is about twenty-one nautical miles across, and the traffic separation scheme gives inbound and outbound vessels a lane two miles wide each. Both lanes sit within territorial waters, which is the geographic fact underneath every legal argument about the strait.

Ships pass under the regime of transit passage, which the Law of the Sea convention says a coastal state may not suspend. Iran signed but never ratified that convention and has disputed elements of it, which is why the legal status of a closure is contested rather than settled - a distinction that matters when a market asks whether the strait was closed.

Practically, the strait is not a place where oil can be rerouted. It is the only sea outlet from the Gulf, so the crude and LNG of Saudi Arabia, Iraq, Kuwait, Qatar, the UAE and Iran either pass through it or take a pipeline that mostly does not exist.

About twenty million barrels a day of crude and refined products pass through, close to a fifth of global petroleum liquids consumption, along with a comparable share of the world's liquefied natural gas - almost all of the latter from a single exporter. No other chokepoint carries that concentration of energy trade.

The destination matters as much as the volume. The large majority of Hormuz crude goes to Asia, with China, India, Japan and South Korea the biggest buyers. A disruption is therefore first an Asian supply crisis and only second a global price event - though the price channel reaches everyone within hours.

There is a second-order effect that markets consistently underprice: shipping cost. Even a threat that does not stop a single cargo raises war-risk insurance premiums for vessels entering the Gulf, and that surcharge is a real, immediate tax on every barrel loaded - visible in freight rates days before it shows up in any political analysis.

Two pipelines can move Gulf crude to the open sea without passing the strait. Saudi Arabia's East-West pipeline runs to the Red Sea at Yanbu with a capacity around five million barrels a day, and the UAE's line to Fujairah on the Gulf of Oman adds roughly one and a half million. Together they are a partial answer at best - and the Red Sea route has had its own security problems.

Everything else depends on the strait. Iraq's southern exports, Kuwait's entire seaborne trade and Qatar's LNG have no bypass at all, which is why estimates of usable spare capacity in a disruption are far smaller than the headline pipeline numbers suggest.

The legal instruments to check when a market talks about closure are specific: transit passage under the Law of the Sea convention, national notices to mariners, war-risk designations by the insurance market's joint committee, and any naval escort or convoy arrangement announced by coalition forces. These produce dated, published documents - which is what a market can settle on.