Hormuz choke point remains shut, forcing a repricing of global energy risk

Editor's Note: The crisis around the Strait of Hormuz is shifting from a battlefield storyline to a stress test for the global energy system. The ceasefire has not translated into a real recovery in shipping, and markets are starting to price in the possibility that disruption becomes the new baseline. In early May, the U.S. said it would launch "Project Freedom" to help guide stranded vessels out of the Persian Gulf. Iran warned foreign warships to stay out of the strait. Fresh clashes then erupted near Hormuz: Washington said it thwarted Iranian attacks on three U.S. Navy ships; Tehran accused the U.S. of breaking the ceasefire by striking ships and coastal areas. Former President Donald Trump said the ceasefire still holds, but risk premiums have risen, with Brent briefly trading near $101 a barrel. After being attacked by the United States and Israel in late February, Iran tightened controls on transits through the strait, effectively choking the corridor for more than two months. Tehran says it will not reopen the route unless Washington lifts its maritime blockade on Iranian ports. The economic costs are mounting worldwide as oil, natural gas and other commodity prices rise and supplies tighten. Shipping data underscore the scale of the disruption. Average daily transits have fallen from about 135 in peacetime to fewer than 10. Shipowners have largely stayed away to avoid casualties, lost cargo and vessel damage. Iran continues to move its own crude and allows select ships through a corridor near its coastline; at times it has demanded fees of up to $2 million. The April ceasefire did little to restore traffic. From April 13, the U.S. began blocking vessels that had previously called at Iranian ports or were headed there, aiming to pressure Iran's oil exports and restore Hormuz as a "toll-free zone." Iran has so far absorbed the pressure. Iran's semiofficial Tasnim News Agency reported in early May that Tehran expanded the area it claims to control in the strait. The U.S. military says more than 1,500 commercial ships are now stranded in the Persian Gulf. With storage filled, regional producers have been forced to halt most output. Even if a U.S.-Iran deal eventually breaks the deadlock, a quick return to normal traffic looks unlikely. The immediate obstacle is confidence: shipowners and insurers need to believe reopening is durable and routes are safe. Mines are a major concern. Iran has signaled it has laid mines along heavily used lanes, and clearance could take weeks. Convoys would also be hard to scale. Some operators may demand naval escorts, but the U.S. Navy lacks enough ships to protect the more than 100 vessels that typically transit daily, and Washington has struggled to secure rapid allied deployments. The U.K. and France are leading talks to form a multinational coalition to support post-ceasefire shipping. Even with escorts, clearing the backlog on both sides of the strait could take weeks. The narrow channel limits how many ships can move at once and can make grouped vessels easier targets. Trump said Project Freedom would begin May 4 to steer neutral ships away from the Persian Gulf. Details were limited. U.S. Central Command said it would provide military support, including missile destroyers, aircraft and drones. Iran dismissed the effort as "Project Deadlock" and said it breaches the ceasefire. Longer term, the conflict has changed how the market thinks about Hormuz. Iran has shown that it does not need a blue-water navy to paralyze the world's most critical energy corridor: drones, small boats, mine threats, transit restrictions and tolls can be enough. For shipowners, insurers and producing states, the question has shifted from whether passage is possible to what level of risk and cost comes with each crossing. Even after an agreement, volumes may not snap back to pre-conflict levels because the damage is less physical than psychological: trust in the strait's security. Tehran has also signaled it intends to retain and monetize leverage over Hormuz after hostilities. Iran's parliament is advancing legislation that would codify Iranian sovereignty claims in domestic law and formally establish a toll system. Why Hormuz matters: The strait, with Iran to the north and the UAE and Oman to the south, links the Persian Gulf to the Indian Ocean. It runs about 100 miles (161 kilometers) and narrows to roughly 24 miles at its tightest point; each two-way shipping lane is only 2 miles wide. About one-fifth of global oil and liquefied natural gas flows through it. Under normal conditions, Saudi Arabia, Iraq, Iran, Kuwait, Bahrain, Qatar and the UAE ship crude through Hormuz, largely to Asia. The region's refineries also export diesel, jet fuel, naphtha and other petroleum products via the route. Beyond energy, the strait is a key conduit for aluminum, fertilizers and even helium used in semiconductor manufacturing. Can producers bypass it? Kuwait, Qatar and Bahrain have no alternative maritime export route. Saudi Arabia has diverted some barrels to the Red Sea via a pipeline to Yanbu and plans to maximize capacity of 7 million barrels per day, though only about 5 million barrels per day can be exported after domestic allocations. The Red Sea option carries its own risks: Iran has previously attacked a Yanbu refinery and targeted an East-West Pipeline pumping station, and Iran-backed Houthi forces in Yemen have threatened renewed attacks in the Red Sea. The UAE can bypass Hormuz to a limited extent, but spare capacity is constrained, and Fujairah—the terminal at the end of a pipeline to the Gulf of Oman—has previously been targeted by Iran. Iraq is exploring restoration of exports via Jordan and Syria, but the volumes under discussion would be only a fraction of its usual Hormuz-linked flows. Legal questions over control: Under the U.N. Convention on the Law of the Sea, coastal states have sovereignty over territorial seas extending 12 nautical miles (about 14 miles) from shore. Hormuz cuts through the territorial waters of Iran and Oman. The convention requires "innocent passage" in territorial seas and protects "transit passage" in straits used for international navigation, and it bars charging fees solely for passage. Iran signed the convention in 1982, but its parliament has not ratified it.