Strait of Hormuz closure fuels global inflation risks as energy prices surge

ISTANBUL

Tehran’s retaliatory closure of the Strait of Hormuz threatens to fuel global inflation pressures and geopolitical risks, following the joint US and Israeli attacks on Iran.

Ebrahim Jabbari, a senior adviser to Iran’s Revolutionary Guard Corps (IRGC) commander-in-chief, on Monday announced the strait’s closure to traffic amid the ongoing attacks on the country, saying any vessel traversing the waterway would be targeted.

Energy markets across the globe immediately felt the impact of this decision with sharp price rises.

The Brent crude oil surged over $79 per barrel on Monday, its highest since January 2025.

Qatari state-owned QatarEnergy announced a complete halt to its liquefied natural gas (LNG) production after Iran hit two of its facilities.

Natural gas prices for April futures contracts closed at €43.3 ($50.42) per megawatt-hour on Monday at 1700 hours GMT on the TTF, the Dutch virtual natural gas trading hub with the deepest liquidity in all of Europe.

This jump represents a massive 35.5% surge in European gas prices versus the market’s previous close on Feb. 27.

The escalating military risks in the strategically vital waterway severely impacted global maritime insurance markets.

Major marine insurers like NorthStandard, the London P&I Club, Gard, Skuld, and American Club announced cancellation notices due to war risks in Iran and the Persian Gulf.

Tamer Kiran, chair of IMEAK Chamber of Shipping, told Anadolu that the strait’s closure will have a cascading effect on global inflation, production costs, and international supply chains.

Kiran stated that the medium-term outlook reveals a massive decline in global trade volume and broader economic slowdown, while short-term freight rates may increase.

He noted that the Strait of Hormuz is an indispensable avenue for global trade, as the waterway accounts for 21 million barrels of oil and derivatives per day.

Some 85% of the volume is directed toward Asia, so any disruption leads to rising energy prices, freight rates, and insurance premiums.

He mentioned that pipelines through Saudi Arabia, the United Arab Emirates (UAE), and Türkiye are some alternative transport routes with a combined capacity of around 10 million barrels short of fully replacing the Strait of Hormuz’ daily volume.

“International commercial actors are strengthening their contracts with war risk clauses and diversifying their routes and supplies,” he said. “Insurers are repricing premiums and tightening coverage conditions.”

“From the perspective of governments, it’s key to maintain maritime safety, coordinate the usage of strategic reserves, and invest in alternative energy corridors,” he said, adding that any Turkish vessels in the region or Turkish shipowners planning voyages should urgently reroute.

Yucel Acer, a professor of international law and maritime law expert at Ankara Yildirim Beyazit University, told Anadolu that international law fundamentally guarantees “the freedom of navigation” through such waterways.

“The strait’s waters are divided among Iran, Oman, and the UAE; however, regardless of the status of ownership, all vessels retain the right of innocent passage without prior permission, except for foreign warships, as Iran requires a notification from such vessels,” he said.

Acer stated that even though a coastal state may deny passage to specific cargo vessels deemed harmful during wartime, the authority is not absolute, and only Iran can legally exercise the right to block passage within the specific part of the strait that makes up its territorial waters.

He said that any attempt to block the entire width of the trait would constitute a clear violation of international maritime law.

He added that blocking innocent passage for civilian vessels would provoke a robust international legal response, but despite the legal protections, the physical military presence and threat continue to deter global shippers.

*Writing by Emir Yildirim