Amid Israel-Iran tensions, why is Strait of Hormuz important for crude and oil buyers?

The oil purchasing market keeps a special eye on the Strait of Hormuz as around a fifth of the world's total oil consumption passes through it.

Israel-Iran strike news: The tension between Israel and Iran has caused worries for the oil market, especially over the Strait of Hormuz, which Tehran has in the past threatened to close in retaliation for Western pressure.

Around one-fifth of the world's total oil consumption passes through the Strait of Hormuz. (Reuters/File Image)

Israel launched widespread strikes against Iran on Friday, targeting its nuclear infrastructure, ballistic missiles and military commanders under what it called "Operation Rising Lion". Follow Israel-Iran strike live updates

Iran has vowed a powerful and decisive response to the Israeli strikes, saying that its revenge 'will happen soon'.

Following the Israeli strikes, the National Iranian Oil Refining and Distribution Company said that oil refining and storage facilities had not been damaged and continued to function.

While Iran has denied any such intentions, it has in the past threatened to close the Strait of Hormuz in response to Western pressure.

The strait is located between Iran and Oman and links the Gulf north of it with the Gulf of Oman to the south, and the Arabian Sea beyond.

The strait is 33 kilometers wide at its narrowest point, with the shipping lane just three kilometres wide in either direction.

Why is Strait of Hormuz important?

According to Reuters, experts have said that any closure of the Strait of Hormuz could restrict trade and impact worldwide oil prices.

Around one-fifth of the world's total oil consumption passes through the Strait of Hormuz. Between the start and end of 2022, approximately 17.8 million to 20.8 million barrels of crude, condensate and fuels flowed through the strait every day, data from Vortexa showed.

Members of the Organization of the Petroleum Exporting Countries (OPEC), Saudi Arabia, Iran, the United Arab Emirates, Kuwait, and Iraq, export majority of their crude through the strait, especially to Asia.

Meanwhile, Saudi Arabia and the UAE have sought to find other routes to bypass the strait.

The US Energy Information Administration said in June last year that around 2.6 million barrels per day of unused capacity from UAE and Saudi Arabia pipelines could be available to bypass Hormuz.

In fact, Qatar, which is among the world's largest liquefied natural gas (LNG) exporters, sends almost all of its LNG through the Strait of Hormuz.

Over the years, Iran has threatened to block the Strait but has never gone through with the move.

The commercial shipping in the area is protected by the Bahrain-based US Fifth Fleet.

Tensions over oil in the past

Back in 1973, Saudi Arabia-led Arab producers imposed an oil embargo on Israel's Western supporters during the latter's war with Egypt.

At the time, Western countries were the top buyers of crude produced by Arab nations. However, in present times, Asia is the main buyer of OPEC-produced crude.

The US has meanwhile more than doubled its oil liquids production over the last two decades, becoming one of the world's biggest oil exporters.

During the 1980-1988 Iran-Iraq war, the two sides sought to disturb each other's exports in what was known as the 'Tanker War'.

Later, in July 1988, a US warship shot down an Iranian airliner and killed all 290 passengers onboard. This was termed as an accident by Washington, with Tehran saying that it was a deliberate attack, Reuters reported.

Iran threatened to block the strait in January 2012 in retaliation for the US and European sanctions. In May 2019, four vessels, including two Saudi oil tankers, were attacked off the UAE coast, outside the Strait of Hormuz.

Oil prices surge

The escalating tension in the Middle East triggered oil prices to jump by almost 7 per cent to multi-month highs. Brent crude futures were up $4.57 to $73.93 per barrel. Meanwhile, US West Texas Intermediate crude was up $4.53, touching its highest since January 21.

Friday's gains on oil prices were the largest intraday moves for both contracts since 2022, after Russia launched a full-scale invasion of Ukraine.