Strait of Hormuz: Its Impact on Us

The Strait of Hormuz: one of the world’s most important shipping routes which transports around 14.2 million barrels of crude oil and 5.9 million barrels of other petroleum products per day - representing around 20 per cent of global production in the first quarter according to the US Energy Information Administration (EIA). The strait is deep enough for some of the world’s largest crude oil tankers and is used by the main oil and gas producers in the Middle East. The crude oil from middle eastern countries including Saudi Arabia, the UAE, Iraq, Kuwait, Qatar and Iran pass through this corridor and  have proprietary access. 

Tanker tracking by Bloomberg shows that Kuwait’s crude exports surged to a 19 month high in June, reaching a figure of 2.6 million barrels exported per day. Most of Kuwait’s oil is flown to Asian countries, including China, Japan and South Korea. Attacks on oil tankers in 2019 or tensions between the US and Iran in 2020 led to spikes in crude oil prices. These events demonstrate how sensitive oil prices are to the security situation in the region.

Closing the strait as a result of the ongoing Iran-Israel conflict would be the beginning of an economic problem, given its effects on the oil price. It would have a substantial effect on the Gulf countries whose economies are heavily reliant on energy exports. According to Sheikh Nawaf Al-Sabah, chief executive officer of Kuwait Petroleum Corp, they communicated closely with its gulf partners to ensure a steady supply of oil to the market due to the concerns that the conflict could disrupt tanker traffic through the strait, a buffer for Gulf country exports from the Middle East. 

Economic expert Salah Al-Jimaz has dismissed the likelihood of Iran blocking the strait, “A strike on Iranian refineries would provoke a global outcry, with worldwide economies suffering due to oil dependency.” 

Because the region is facing uncertainty, experts believe it is important to plan ahead and Kuwait’s petroleum sector must mitigate risks to ensure uninterrupted exports as well as stability. However, Kuwait has been working on its own infrastructure improvements to enhance export reliability with the development of pipeline routes that go through Saudi Arabia and Iraq to ensure that it has reduced dependency on the strait: a vital but volatile shipping route. These initiatives are part of a strategy by Gulf countries to diversify oil export routes in light of geopolitical tensions currently happening that is likely to disturb trade. The Kuwait-Saudi Crude Pipeline offers a direct route to the Red Sea, bypassing the Strait of Hormuz and is an alternative to export crude oil and gas. 

Still, if the strait does close, this will trigger significant global economic disruptions, affecting oil supply chains and economies worldwide - including Kuwait’s.