London
President Donald Trump has cast a fragile two-week ceasefire between the United States and Iran as a “total and complete victory.” But the terms of the truce highlight how Iran has used control of the Strait of Hormuz to gain enormous leverage over the global economy.
That the ceasefire is conditional on Iran agreeing to reopen the vital waterway is a tacit acknowledgement of Tehran’s influence over the world’s most important oil chokepoint – and, with it, significant chunks of the global economy.
“Iran doesn’t need a lot of military might to cause a huge disruption in the global economy,” Brookings energy expert Samantha Gross said last month.
Investors and traders cheered the ceasefire, even as analysts warned that global oil supply worries have not gone away. Crude oil prices plunged 15-20% on Wednesday, with benchmark European natural gas prices tumbling by a similar margin.
“There are significant hurdles to overcome before the ceasefire agreement between the US, Israel and Iran can translate into a lasting end to the war,” Neil Shearing, chief economist at Capital Economics, cautioned in a note. “For markets, the most critical issue remains the status of the Strait of Hormuz.”
It remains to be seen whether shipping resumes in full, and after some signs of tanker transits early Wednesday, Iran reportedly stopped traffic after Israel attacked Lebanon. At least for now, Iran’s military is controlling those sailings, granting it unique power as far as global energy markets are concerned.
Iran has effectively blockaded the Strait of Hormuz for the vast majority of vessels for more than six weeks — a previously unthinkable scenario for a waterway that ordinarily carries about a fifth of global oil and natural gas supplies and a third of the world’s urea fertilizer exports.
“This is the thing that energy security analysts… have been worried about forever,” Brookings’ Gross said.
Countries around the world are reeling from the historic oil supply shock.
In Asia, looming fuel shortages are prompting governments to take drastic measures, with the Philippines declaring a national energy emergency. Europe, meanwhile, faces surging electricity prices just as it emerges from the crunch precipitated by the Russia-Ukraine war. And even in the oil-rich United States, gasoline prices have jumped.
Iran’s influence over the strait “has been enough for it to be able to get a ceasefire,” and, crucially, with its own regime weakened but still standing, Dan Alamariu, chief geopolitical strategist at consultancy Oxford Economics, told CNN. Iran has weaponized the Strait of Hormuz to wage an “economic war.”
Control of the Strait of Hormuz has given Iran two key advantages: economic leverage over the rest of the world, and the ability to replenish its wartime coffers with revenue from oil sales — at inflated prices.
Washington even temporarily lifted sanctions on around 140 million barrels of seaborne Iranian oil to alleviate the global supply crunch.
Iran’s oil exports averaged around 1.85 million barrels a day through March, about 100,000 barrels a day more than the average between December and February, according to Homayoun Falakshahi, an analyst at data and analytics firm Kpler.
Iran is also earning more from its oil exports, which in normal times sell at a discount of around $10 a barrel to Brent crude. In some recent sales in China, which typically takes the bulk of Iranian oil, that crude sold for around $3 a barrel more than Brent, Falakshahi said. In India, that premium stretched to $7 in some cases, he added, citing traders and refiners on the ground in both countries.
“The larger pool of clients and the lack of competing oil from the Middle East have boosted the pricing of Iranian oil,” Falakshahi told CNN.
Tehran, meanwhile, wants to keep exercising its newly flexed economic muscle by continuing to have a say over access to the strait even once the war ends, according to a 10-point proposal underpinning negotiations with the United States.
“Iran’s ruling regime has (arguably) solidified its political control, and has demonstrated its capacity for bringing global oil and gas markets to their knees,” Karl Schamotta, chief market strategist at Corpay Currency Research, wrote in a note Tuesday.
Trump, for his part, has described Iran’s proposals as “a workable basis on which to negotiate,” according to a post on Truth Social.
Several analysts now see a potentially permanent tolling system for ships transiting the waterway, albeit with important caveats.
“The ceasefire has reinforced the Strait of Hormuz as both a pressure point and a bargaining mechanism,” analysts at Kpler wrote in a note Wednesday.
For example, Kpler suggested that Oman, in whose territorial waters lie part of the strait, could act as a “neutral, non-sanctioned intermediary” that receives payments and then remits an agreed share to Iran. Formalizing paid access to the Strait of Hormuz could potentially help satisfy another of Iran’s core demands — economic compensation for the damage wrought by the conflict.
Tehran had already moved to start charging ships transiting the strait in recent weeks, with at least one vessel coughing up $2 million to do so, according to shipping intelligence firm Lloyd’s List.
On Wednesday, Iran’s semi-official Tasnim news agency reported that Iran and Oman plan to charge transit fees. CNN has contacted Oman’s foreign ministry for comment.
Commercial shipping companies and insurers are likely to accept transit fees “more quickly than policymakers,” according to Kpler. “For much of the Gulf’s export capacity, there is no meaningful alternative route.”
