The world’s oil market seized in recent days amid heightened tensions between the United States and Iran in the Strait of Hormuz. Oil-rich Iran, sensitive to the prospect of global sanctions on its exports, hinted that it would attack American shipping in the strait.
Approximately 35 percent of all oil shipped by sea, and 20 percent of all oil traded worldwide, travels through the strait, according to the U.S. Energy Information Administration. The vast majority of oil exported from the Middle East passes through this strategic sea lane. At its narrowest point, the Strait of Hormuz is just 35 miles wide, qualifying it as one of the most vital choke points on the planet.
Market analysts become jittery when even a whiff of a potential oil supply interruption permeates the air. This latest incident resulted in a $5 to $10 a barrel spike in futures. The fact that oil prices didn’t leap higher is a vote of confidence that ultimately, Iran will not deliver on its threats. All bets would be off if Iran followed through on its blockade threat, however, and consumers could see a 50 percent increase in oil prices within days, according to energy analysts.
If there is an upside to the Persian saber-rattling, it is the potential to serve as a wake-up call to Washington’s policymakers on the urgent need to increase America’s domestic energy production.