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THE STRAIT OF HORMUZ:
This is a narrow stretch of water that separates the Persian Gulf from the rest of the world. It’s surrounded by major oil producing countries who make up HALF of the worlds supply, geographically – it’s the ONLY sea passage from the Persian Gulf to the open ocean, and other countries have significant influence to keep it open.
OIL PRICES:
The United States uses almost 20 million barrels of oil, every single day – which, makes us the number-one consumer of oil, but, there’s catch: since we only produce 18.6 million barrels of oil per day, we’ve become reliant on other countries to fill that deficit.
If the Strait of Hormuz is closed off (even just temporarily) oil prices would rise, shipping costs would increase, production of raw materials goes up in price, and transportation would become much more expensive. The Federal Reserve estimates that every $10-per-barrel jump in crude oil prices results in 0.2% more inflation.
On top of that, the United States personally receives about 7% of its oil supply directly from the Strait of Hormuz, leaving us with no other choice than to pay higher prices to other exporting countries closer to us, like Canada and Mexico. Even the risk of a potential shutdown caused oil to spike 10%, pretty much overnight, and JP Morgan believes that we could see oil rise as high as $130 a barrel in the event it’s closed for a sustained period.
THE CHANCE OF THE STRAIT OF HORMUZ CLOSING:
Personally, based on prior actions that have never come to fruition, I tend to believe that there’s such a small likelihood of the Strait of Hormuz actually shutting down, that it’s probably never going to happen.
If they closed it down, there would be swift action from the entire world. If they closed it down, they risk ruining their relationship with China, who’s dependent on this passage staying open. If they closed it down, it wouldn’t stay closed for long, because – they would have the full force of the world to make sure it’s functional.
I’ll also admit that people aren’t always logical, things happen that you would never expect, and, I don’t doubt that this has the potential to escalate much further. But it’s not worth risking the global economy to shut it down (even though I REALLY HOPE everything can be resolved as quickly as possible).
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