[News Terms] The Hormuz Strait Caught in the Crossfire of the 'I-Pal War'

The armed conflict between Israel and the Palestinian militant group Hamas is showing signs of escalation, drawing attention to its potential impact on international oil prices. Although Israel and Palestine are not oil-producing countries and the immediate effect on the crude oil market may be limited, a spread of the conflict throughout the Middle East could cause significant shocks. In particular, U.S. President Joe Biden has stated that he is prepared to deploy additional military assets to support Israel, raising concerns that Iran might block the Strait of Hormuz, through which 20% of the world's oil passes.

On the 10th (local time), smoke rose after Israel conducted an airstrike on the Gaza Strip. [Image source=EPA Yonhap News]

The Strait of Hormuz, located between the Persian Gulf and the Gulf of Oman, is a small and narrow strait, measuring 65 to 95 km in width. However, it is considered a crucial maritime trade chokepoint as it connects the Persian Gulf to the Indian Ocean. In the 10th century, the Kingdom of Hormuz prospered by controlling trade in the Persian Gulf from its base on Hormuz Island and this strait. Since the discovery of oil, it has been called the "powder keg of the Middle East." This is because oil-producing countries such as Saudi Arabia, Iran, Iraq, Kuwait, and the United Arab Emirates are densely located around the Persian Gulf. Most of the crude oil produced here is transported by sea, and the Strait of Hormuz is an essential passage for this transportation.

Due to its strategic location and narrowness, control or blockade of the strait could severely disrupt global oil supply, directly affecting international oil prices. For example, during the Iran-Iraq War in the 1980s, the temporary blockade of oil tankers passing through the Strait of Hormuz caused oil prices to skyrocket.

If the Strait of Hormuz is blocked, the South Korean economy would also be hit hard. As of the end of August 2023, 72% of South Korea's total crude oil imports come from the Middle East, with most of this oil passing through the Strait of Hormuz. A blockade would make it difficult for South Korea to secure crude oil supplies and inevitably increase energy costs. The Hyundai Research Institute analyzed that during heightened tensions between the U.S. and Iran over Iran's suspected nuclear weapons development in 2012, a temporary blockade of the Strait of Hormuz could reduce South Korea's GDP growth rate by 0.7 percentage points.