Iran’s strategic location next to Strait of Hormuz increases risk of further oil price hike

The conflict in Middle East significantly escalated last night when Israel struck nuclear facilities inside Iran. Some key military leaders of Iran were also dead in these strikes. These include Hossein Salami, head of Islamic Revolutionary Guards; Mohammed Bagheri, Chief of Staff of Iranian armed forces; and Gholmali Rashid, the deputy commander-in-chief of the Iranian armed forces. Israeli army has confirmed that in retaliation Iran has till now fired more than 100 drones towards Israel.

Iran can block or disrupt Strait of Hormuz

Iran is strategically located next to Strait of Hormuz. It can block or disrupt movement of ships and tankers through the Strait of Hormuz in retaliation. This will cause a major disruption in the world’s supply of oil. Oil from Saudi Arabia, Kuwait and Iraq are mainly shipped through Strait of Hormuz. This is a major reason why oil prices have spiked since the attack last night. There is therefore also high risk that oil prices may see further hike.

Average daily volume of oil that is shipped through Strait of Hormuz is more than 16 million barrels per day. Alternative routes to Strait of Hormuz have only a quarter of the capacity of Strait of Hormuz. Also, alternative routes increase the cost of shipping.

At 1: 50 p.m. Indian Standard Time, 13^th June, 2025, both WTI crude and Brent crude for July delivery are up by more than $4 per parrel since yesterday. WTI crude for July delivery is trading at $72.22 per barrel. Brent crude  is trading at $73.45 per barrel.

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Source: Israel Defense Forces; Islamic Revolutionary Guards of Iran