Key Takeaways:
Iran warned the maritime blockade will end "either through negotiations or military action," as analysts say the Strait of Hormuz could remain largely shut for six months, leaving a 10 million barrel-per-day crude supply gap with no short-term fix.
Iran warned its maritime blockade will end "either through negotiations or military action," as Piper Sandler said the Strait of Hormuz could remain largely shut for months, leaving a 10 million barrel-per-day crude supply gap with no short-term alternative.
"The Strait will largely remain shut for several months, and commercial traffic will not recover to even 50% of pre-crisis levels next week or next month," Piper Sandler said in a May 26 note to institutional clients, according to CNBC. The investment bank said oil prices will hit new highs this summer as a result.
The warning came as Iran's Islamic Revolutionary Guard Corps maintained its blockade of the strait, with only three large commercial vessels passing through in recent days, all with their AIS tracking turned off, according to freight forwarder Flexport. The US Navy has been quietly escorting a small number of vessels, including a Greek supertanker carrying 2 million barrels of crude to India that had been stranded since early March. The International Energy Agency released more than 400 million barrels from emergency stockpiles after the closure began, according to Brookings, though those buffers have limits.
Before the crisis, roughly 25% of the world's seaborne crude oil trade and 20% of global LNG transited the strait daily, feeding Asian economies including China, India, Japan and South Korea. All feasible bypass alternatives — the Cape of Good Hope route, Saudi Arabia's East-West pipeline at 7 million barrels per day, and the UAE's Abu Dhabi Crude Oil Pipeline — can handle at most approximately 10 million barrels per day, leaving a gap of at least 10 million barrels with no short-term solution. The Cape route adds 10 to 14 days to a typical Asia-Europe transit.
Iranian Parliament National Security and Foreign Policy Committee spokesman Ebrahim Rezaei said on May 30 that the maritime blockade "will eventually end, whether through negotiations or military action," according to state media. The statement shows Tehran believes it retains leverage even as the US maintains its own blockade of Iranian ports imposed on April 13, creating what analysts have called a "dual blockade."
Iran has been charging vessels tolls exceeding $1 million per ship for limited passage through Iranian-controlled corridors, further distorting commercial operations. The US military conducted what it described as "self-defense strikes" in southern Iran targeting vessels placing mines around the strait, actions that Flexport said were seen as a violation of the ceasefire. Since the Iranian Revolution in 1979, the Strait of Hormuz has been a geographic constant as a choke point for which closure has been threatened from time to time but never truly carried out — until Feb. 28, when Iran effectively shut the waterway.
Piper Sandler's assessment aligns with the Pentagon's own internal analysis, which warned the closure could last six months or more. ADNOC Group CEO Sultan Al Jaber said in a LinkedIn post that oil flows through the strait may not fully return until as late as the second quarter of 2027.
The supply shortfall will build in coming months as temporary reserves are depleted, Brookings noted. West Texas Intermediate futures bounced back on May 26 after Piper Sandler's note circulated, reversing earlier declines driven by hopes that President Donald Trump's comments about a "largely negotiated" deal with Iran could lead to a rapid reopening. Trump said on May 24 he had told his representatives not to rush into any deal, as his administration maintains its blockade.
The $123 trillion global economy depends on a waterway just 18 nautical miles wide at its narrowest point. With both the Strait of Hormuz closed and the Bab al-Mandeb Strait vulnerable to Houthi attacks, carriers have been left with only one alternative for Asia-Europe transit: the Cape of Good Hope route around southern Africa, adding 10 to 14 days and significantly increasing fuel consumption per voyage.
This article is for informational purposes only and does not constitute investment advice.
