Halt of Hormuz 🚢

Date: Feb 28, 2026. 

Location: Somewhere near the Strait of Hormuz.

On a regular day, nearly 140 vessels pass through the Strait of Hormuz — one of the world's most strategically important chokepoints. At least 70 oil tankers pass through the strait each day, carrying 21 million barrels of oil, which is 20-25% of the world's global oil production.

But Feb 28th was no regular day. 

The Islamic Revolutionary Guard Corps Navy transmitted VHF radio warnings to vessels trying to pass through the strait. The message was: "Attention all ships, this is a message from Iran's navy. From now on, all navigation through the Strait of Hormuz is forbidden. No ship of any type is allowed to pass the Strait of Hormuz."

This was a retaliation for the U.S.-Israeli joint attack on Iran earlier that same day. Hours after the attack, Tehran chose the ultimate leverage: closing the Strait of Hormuz and strangling global trade.

And it kind of worked. 

After the announcement from Iran's navy, vessel traffic collapsed immediately. The number of ships passing through the strait dropped 40-50% by the evening of Feb 28, as vessels reversed course or ducked into nearby ports. As of March 4, according to Clarksons data, roughly 3,000-3,200 vessels now sit idle in the Persian Gulf area waiting to pass through the strait — this is nearly 4% of global shipping tonnage. 

Experts warn this is just the beginning. If the Strait stays closed for a few more weeks, the world could be staring at another Black Swan event in global shipping, with oil prices crossing the $100/barrel threshold, and inflation skyrocketing.  

So why does this narrow stretch of water matter so much to the global economy?

To understand all of this, we need to know about the Strait of Hormuz — how it became so critical, why there is no real alternative, and what its closure truly means for global trade, energy, and supply chains.

If you look at a world map, you will barely notice the Strait of Hormuz. It is a sliver of water wedged between Iran to the north and Oman's Musandam Peninsula to the south, connecting the Persian Gulf to the Gulf of Oman. 

At its narrowest point, the strait is just 21 miles (33 km) wide — with the actual shipping lane even tighter: two traffic corridors, one inbound and one outbound, each just 2 miles (3 km) wide, separated by a 2-mile buffer zone. Every VLCC, every LNG tanker, every bulk carrier out of the Gulf passes through this narrow passage to deliver oil to the world. 

The Strait of Hormuz has always been a critical point in global trade. For centuries, even before the first tanker ever loaded a barrel, this narrow passage carried ivory, ceramics, and silk. Oil is simply the latest — and most consequential — commodity to flow through it.

During the ancient Mesopotamian times, the strait served as a vital maritime hub for trade flowing toward the Horn of Africa and across the Indian Ocean. In his memoirs, Babur, the first Mughal emperor, recounted how almonds had to be carried all the way from Central Asia's Ferghana region to Hormuz just to reach commercial markets. 

But among the Europeans, it was the Portuguese who first understood the strategic importance of the Strait of Hormuz. Their logic was simple and ruthless: monopolize the spice trade by sealing off key chokepoints in the Indian Ocean. By 1515, under the command of Afonso de Albuquerque, the Portuguese had captured Hormuz, built a fortress, and turned this sliver of water into the centerpiece of their Gulf dominance. A grip they held for over a century until Anglo-Persian forces expelled them in 1622.

And for the next 300 years, the Strait of Hormuz remained a critical location for regional trade. 

But it all changed after the discovery of a liquid substance beneath the Persian Gulf. From this point on, the Strait of Hormuz became a global strategic chokepoint — one that no country could afford to ignore.

On May 26, 1908, after years of failed drilling and near-bankruptcy, geologist George Bernard Reynolds struck oil at Masjed Soleyman in modern-day Iran — the first commercial oil discovery in the Middle East. A year later, the Anglo-Persian Oil Company was founded. By 1912, the company was exporting that oil to the world, and for the first time, tankers began threading through the Strait of Hormuz carrying crude. 

And it was just the beginning. In the subsequent years, oil was discovered across the Arab world — Iraq in 1927; Bahrain in 1932; Saudi Arabia in 1938, and so on. 

Western oil companies saw this opportunity and moved fast.

Seven major corporations — Exxon, Mobil, Chevron, Texaco, Gulf Oil, British Petroleum, and Royal Dutch Shell — rushed to sign drilling deals across the Gulf states. This cartel was later nicknamed the Seven Sisters. 

Interestingly, the Seven Sisters didn't just drill wells — they controlled everything. They decided how much oil was produced, set the prices, and determined who got access to Gulf oil. By 1950, the Seven Sisters controlled roughly 85% of the world's petroleum reserves, most of it sitting beneath the Gulf.

A decade later, the oil-producing nations in the Gulf decided to take things into their own hands.

With each passing decade, OPEC's oil production grew substantially — and so did its influence over global energy markets. In 2016, OPEC expanded its alliance further, bringing in major non-member producers such as Russia, Kazakhstan, and Azerbaijan to form OPEC+, now a 22-nation bloc that collectively controls roughly 41% of global oil production. 

In 2025, OPEC alone averaged approximately 28.5 million barrels of crude oil per day.

The bulk of it goes east. According to OPEC's latest annual data, in 2024, OPEC exported an average of 19 million barrels per day, and of that, 13.67 million barrels, or nearly 72%, went straight to Asian markets – this includes China, India, Japan, and South Korea.

And almost all of this oil travels through the same route: the Strait of Hormuz.

So if the oil that passes through the Strait of Hormuz is overwhelmingly consumed by Asian countries, why should the rest of the world be concerned? It shouldn't be affecting the global economy, right?

That is not the case. And the reason lies in a simple, unforgiving truth about how oil markets work and how deeply the world is intertwined with oil, far more than it likes to admit.

When it comes to oil, geography doesn't matter — price does. Whether a barrel is pumped in Saudi Arabia, shipped to South Korea, or refined in Texas, it is priced against the same two global benchmarks: Brent Crude and WTI. They move together, they react together, and when one spikes, so does the other. A supply shock in the Persian Gulf doesn't stay in the Persian Gulf. It travels instantly to every fuel pump, every airline, every factory floor on earth.

And when Iran threatened to close the Strait of Hormuz, that is exactly what happened.

With more than 20 million barrels a day of global oil supply suddenly at risk, traders and markets reacted immediately to the expected supply shock. Brent crude, which had been trading around $73 a barrel when the markets closed on Friday, surged more than 13% when the markets opened on March 2nd, briefly crossing $82 — its highest level in over a year. Wood Mackenzie warned that if tanker operations are not restored quickly, oil prices could rise above $100 per barrel.

The impact is already being felt at the pump. By Wednesday, average U.S. gas prices had climbed to $3.19 per gallon — up 22 cents from just one week ago and 10 cents higher than the same time last year, according to AAA.

Oil is not just fuel for cars — it is the raw material for plastics, fertilizers, pharmaceuticals, synthetic fabrics, and thousands of industrial chemicals. When oil prices spike, the cost of making almost everything goes up. 

Natural gas markets were hit just as hard. Qatar — the world's largest LNG exporter, responsible for roughly 20% of global LNG supply — shut down production after its facilities were targeted. European natural gas prices surged more than 50% in a single session, with TTF — the benchmark for European gas — spiking to levels not seen since the 2022 energy crisis.

That is because in Europe and Asia, the LNG from the Middle East powers electricity grids, runs industrial furnaces, and feeds fertilizer plants. And when gas prices spike, electricity bills will rise, factory costs will climb, and food production will become even more expensive. 

The damage doesn't stop at energy. 

The Strait of Hormuz carries far more than oil and gas — it is a critical artery for the raw materials that feed global industry. According to trade analysis firm Kpler, roughly 33% of the world's fertilizers — including sulfur and ammonia — pass through the strait. 

The strait is also a key transit route for aluminum, sugar, polymers, and petrochemicals. These are raw materials that go into clothing, cookware, medical equipment, soap, and detergents. When they stop moving, manufacturers feel it first — and consumers feel it shortly after, in the form of delays, shrinking inventories, and rising prices.​

Shipping companies are also reacting to the crisis. 

Before February 28, hiring a VLCC supertanker on the Middle East-to-China route cost around $100,000 per day. By March 3, that rate had exploded to over $420,000 per day — an all-time record. The reason was simple: fewer ships were willing to make the journey.

War risk insurance premiums — the additional cost shippers pay to sail through conflict zones — surged overnight. Underwriters began pricing the Strait of Hormuz at the same risk level as the Black Sea during the Russia-Ukraine war. The premium to insure a single voyage through the strait was running into hundreds of thousands of dollars, on top of already record freight rates.

The disruption does not stop at oil tankers. Container ships — carrying everything from furniture and clothes to food and building materials — are caught in the same crisis.

Danish shipping giant Maersk announced it would suspend all vessel crossings in the Strait of Hormuz until further notice. Maersk and Hapag-Lloyd have rerouted their fleets around the Cape of Good Hope at the southern tip of Africa — a detour that adds roughly 10-14 days and significant fuel costs to every voyage. Diversions around the cape surged 112% on Monday alone, according to maritime intelligence firm Windward. 

According to reports, carriers are already adding war risks and emergency contingency surcharges that can cost anywhere between $800 and $1000 per container, and every one of those costs will ultimately be passed on to the end consumer in the form of higher prices for the goods they buy.

Which raises an obvious question: if the Strait of Hormuz is so vulnerable, why hasn't the world built an alternative? Is there another way out — a pipeline, a bypass, a detour that could keep the oil flowing? The answer, it turns out, is both yes and no.​

Over the decades, the persistent threat of a Hormuz closure has pushed Gulf producers to build escape hatches. On paper, two pipelines exist that can partially bypass the strait.

According to the U.S. Energy Information Administration, Saudi Arabia operates its 1,200-kilometre East-West Pipeline — also known as the Petroline — running from oil fields in the Eastern Province to the Red Sea port of Yanbu, with a capacity of 5 million barrels per day.  The UAE, meanwhile, has its Habshan-Fujairah pipeline — a 360-kilometre line connecting Abu Dhabi's inland oil fields to the port of Fujairah on the Gulf of Oman, which sits safely outside the strait, with a capacity of 1.5 million barrels per day. 

But here is the problem. These pipelines do not typically run anywhere close to full capacity. The EIA estimates that only about 2.6 million barrels per day of combined Saudi and UAE pipeline capacity could realistically be mobilised in a disruption scenario. The Strait, on the other hand, transports nearly 21 million barrels per day. Even if both pipelines run at full capacity, they would barely cover a quarter of what normally flows through Hormuz. 

And for container ships, there is no bypass, no shortcut, no workaround. The only option is the one shipping companies are already taking — a detour of thousands of miles around the Cape of Good Hope, adding up to two weeks to every voyage and burning fuel the entire way. The Strait was not just the most convenient route. For most of the world's shipping, it was the only route. 

But there’s a ray of hope: if geography offers no escape, geopolitics might. And that is what is happening right now. 

President Trump made his position clear on social media on March 3 — without providing specifics. He announced that the U.S. would begin offering "political risk insurance and guarantees for the Financial Security of ALL Maritime Trade, especially Energy, traveling through the Gulf." He wrote: "If necessary, the United States Navy will begin escorting tankers through the Strait of Hormuz as soon as possible. No matter what, the United States will ensure the FREE FLOW of ENERGY to the WORLD.”

But the practical reality is more complicated. According to Bloomberg, Marsh — the world's largest insurance broker — said a U.S. plan to insure tankers navigating the Strait of Hormuz could take a few weeks to arrange. In the meantime, ships remain idle, routes stay diverted, and the costs keep climbing. 

Additionally, U.S. naval escorts would certainly lower the risk, but they are unlikely to offer full protection against Iran's extensive use of drones, missiles, and fast-attack boats, according to experts. 

The Strait of Hormuz crisis is a reminder of something the world keeps forgetting: a single chokepoint can disrupt global supply chains and bring trade to its knees.

For now, nations are drawing down oil reserves, ships are taking the long way around, and diplomats are talking. But none of that lasts forever. Reserves will run out. Detours will start getting expensive. And if the Strait stays closed long enough, the cost of this crisis will stop being an abstract number and will start showing up in our grocery bills, at the fuel pump, and in the price of almost everything we buy. 

This newsletter was written by Shyam Gowtham