The Strait of Ormuz – the most important "narrow throat" of the global oil and LNG market

The Ormuz Strait is one of the most important oil and LNG transport routes in the world. It is through this water that a huge part of the transport of oil and liquefied natural gas from the Gulf states is going through.

Updated – 24 March:
In recent weeks, tension in the Ormuz Strait area has increased rapidly. Iran introduces selective ship control, and the number of passages through the strait has fallen to the lowest levels in years. Detailed analyses are published in the latest texts on the Shipyard Portal.

In the context of the war in the region, the question arises, therefore, as to who is gaining from the restrictions on shipping by the Strait of Ormuz and why events in this place are important to most economies of the world.

To understand the scale of the problem, it is worth first looking at the Strait itself and its importance for the world's transport routes of energy raw materials. At the widest point, the strait is about 54 km, while the actual shipping tracks used by ships are much narrower and have about two nautical miles wide for traffic in each direction.

The importance of the Strait to the global LNG market

Ormuz Strait is one of the most important strategic points in world shipping. This relatively narrow basin separates Iran from the Arabian Peninsula and connects the Persian Gulf with the Oman Gulf and further to the Arabian Sea. At the narrowest place, the strait is about 54 km wide, while the actual shipping tracks used by ships are much narrower and have about two nautical miles wide for traffic in each direction.

The importance of this water is mainly due to the role it plays in the global transport system of energy raw materials. According to analyses, around 20 million barrels of oil and oil products pass through the Strait daily, which corresponds to about one quarter of the world's maritime oil trade. This means that the Strait of Ormuz remains the most important energy "narrow throat" of the world economy.

In the current situation, the importance of this water has once again become the focus of the global energy markets. Following the attack of unmanned systems on energy installations in Qatar, QatarEnergy stopped the production of liquefied natural gas. The impact included a plant in Ras Laffan and infrastructure in Mesaieed Industrial City – key elements of the Qatari gas export system.

This decision immediately translated into a situation in the energy markets. The State is responsible for around one-fifth of global LNG trade, and therefore any interruption in the production or export of this raw material raises serious concerns of importers. An additional destabilising factor is the situation in the Ormuz Strait area. According to Anadol, oil and LNG traffic in the region fell by up to 86 percent after the threats of the Iranian Revolutionary Guard.

For ten days the Middle East war has shaken financial and raw materials markets, including the gas market. In Europe, prices of this raw material rose by about 20 percent on Monday, and benchmark TTF contracts in Amsterdam reached around EUR 64 per MWh. Related uncertainty the conflict in the Gulf region continues to exert strong pressure on energy markets.

At the same time, Europe is ending the current heating season with significantly lower gas reserves than in previous years. Magazines in the European Union are currently about 29.4 percent, while the five-year average for this period is 43.4 percent.

Limited bypassing of the Ormuz Strait

The importance of this water further increases the fact that alternative routes of export of energy raw materials from the Gulf region are very limited.

Saudi Arabia and the United Arab Emirates have pipelines to partially bypass the strait, directing oil to ports on the Red Sea or the Oman Gulf. However, the total capacity of these systems is estimated at about 3.5–5.5 million barrels per day, which is only a fraction oil volume transported by the Strait of Ormuz.

In the case of LNG, the situation is even more clear. Qatar only exports gas by sea, so the transport of raw material in practice depends entirely on the ability of ships to cross the strait.

Distortion of navigation and impact on the global energy market

With the increase in armed conflict in the region, information appears about incidents involving vessels in the Gulf of Oman and near the Strait of Ormuz. Reports of damage to tankers and warships remind us of how important the conflict in the region is to control maritime routes transport.

Even without formal closure of the Strait, the level of danger can lead to almost complete detention of ship traffic. In the event of an increased risk, shipowners shall stop crossing this route and some vessels shall remain anchored outside the strait or change the route of the voyage. A further factor is the withdrawal of protection by insurers from war risks, which in practice prevents normal shipping.

Who gains from interference in the Ormuz area

In practice, this means that the fate of the global energy market largely depends on the safety of one relatively narrow water. The Strait of Ormuz has been a place where geopolitics have been directly in contact with the economy for decades. Every crisis in the area immediately impacts oil and gas prices, and its effects are felt both by the countries of Asia and Europe.

At the same time, beneficiaries also appear in such disturbances. The reduction in supply of raw materials from the Gulf increases the importance of producers outside the region. In particular, this applies United States, which has become one of the largest LNG exporters in the world in recent years. The greater uncertainty in the Ormuz Strait area, the greater the importance of supplying gas from US terminals.

Therefore, events taking place in the Gulf region today are not just a regional conflict. This reminder that the security of the world economy still depends on several key maritime transport routes. Among them the most important "narrow throat" remains the Straits of Ormuz. History has repeatedly shown that the fate of the global energy market can depend on several strategic points on the map. This trail remains one of the most important.