For decades, a narrow bit of ocean separating Iran from the Oman Peninsula has quietly sustained the world’s appetite for energy. The Strait of Hormuz, barely 21 miles wide at its narrowest point, is one of the most critical shipping and strategic chokepoints on the planet. Today, its closure is being felt across the board, at gas stations, grocery stores, and businesses worldwide.
In 2024, the Strait averaged 20 million barrels of oil per day, which is roughly 20 percent of the global petroleum supply. We almost never think about where the oil that fuels our society comes from, but it is now at the forefront of civilian life.
After the initial military conflict between the United States, Israel, and Iran on February 28, 2026, the strait closed, disrupting 20 percent of the global oil and liquefied natural gas supplies. The International Energy Agency characterized it as the “greatest global energy security challenge in history.” Brent crude oil prices surged from around 65 dollars a barrel to nearly a hundred in just a few days.
The economic ripple effects move incredibly fast. Oil prices inflated to a peak of 120 dollars a barrel, and average gas prices across the US increased by over 30 percent. Though the US produces more crude oil than any other country and does not import much from the Strait, the disruption to global supply chains pushes costs up everywhere.
The closure hit Asia particularly hard since around 84 percent of the crude oil that moved through the Strait went to markets in China, Japan, India, and South Korea. Countries like Japan that rely almost exclusively on the Strait for crude imports have had to scramble to find alternatives, as well as drawing on reserves and paying premium prices to secure energy for their citizens.
Amid the broader shutdown, China has managed to pass a meaningful number of ships through. Iran’s Islamic Revolutionary Guard Corps effectively set up a “toll booth” system in the Strait, where vessels that submit documentation and pay clearance fees can receive escorted transit through a controlled region of the strait. At least two vessels paid fees in Chinese yuan, and reports suggest other vessels are paying with cryptocurrencies like Bitcoin and Ethereum.
The cost of that passage has been fairly high. Vessels have been paying fees of around 2 million dollars to Iran for transit of the waterway. This system of tolls increased tensions between the US and Iran but opened a small window for Chinese ships willing to pay. An interesting side effect of the toll system is that shares of Chinese cross-border payment companies surged after the commerce ministry confirmed that yuan was being used to pay the tolls. Yuan is not used much internationally, so this is an unexpected dimension of the closure.
The status of the Strait remains shaky, with various peace talks between the US and Iran yielding little change in the region. Given its importance as a lever for global oil prices, we can only hope that the Strait returns to full operating efficiency as soon as possible.
