Oil in Global Economy Series: Iran exports halt might lead to gulf export blockade

Tensions remain high in the Middle East as part of the U.S. sanctions are set to be re-imposed On Iran beginning August and the rest of the sanctions would go live by the end of the year. As the Trump administration has been pushing countries to bring the exports to a complete halt, it might lead to major disruptions of exports from other Gulf countries.

The red marked area in the above map is the Strait of Hormuz, in the Persian Gulf adjacent to Iran. It is the most vital bottleneck in the Persian Gulf and its waters are controlled by Iranian forces. At its narrowest, the strait has a width of 29 nautical miles (54 km). Iran can completely blockade the sea traffic through the Persian Gulf with its military presence at the Strait. Billions of dollars’ worth of goods pass through these waters every year and more importantly, 20 percent of global oil exports pass through these waters including more than one-third of global sea-borne oil exports.

Facing severe sanctions by the United States, Iran has already threatened that if its oil shipments are blocked by the U.S. Navy or by sanctions, it would ensure that the gulf exports from other countries like Saudi Arabia get blocked too.