A Bold Warning: The Strait of Hormuz tensions could push global oil, gas, and freight prices higher—and Australia isn’t spared.
Roughly one-fifth of the world’s oil and liquefied natural gas travels through the narrow Strait of Hormuz, a chokepoint between Iran and Oman. Since the outbreak of conflict, traffic through this vital passage has dwindled to a trickle, threatening the smooth flow of energy and goods worldwide.
Iran’s Revolutionary Guard Corps (IRGC) — designated a terrorist organization by Australia — has warned it will target ships attempting to pass. In state media, IRGC official Ebrahim Jabari declared, “The strait is closed,” and threatened that any passing vessels would be set ablaze by the Guards and the navy. The claim has drawn pushback from the United States, which reportedly says the route remains open for business.
Oil prices have reacted cautiously. Even with the strait officially open, Lloyd’s List notes an 81% drop in passage compared with last week, as ships head away from the Gulf of the Middle East. Monash University economist Robert Brooks describes the move as a temporary spike driven by current tensions, not a signal of lasting disruption. He notes that some price movements even moderated yesterday, and stresses the market isn’t yet pricing in a long, severe disruption. Any extended disruption, he adds, would push prices higher.
But the impact isn’t limited to crude and LNG. The Strait of Hormuz is a major route for urea, a key component in fertilizer, so disruptions ripple through agricultural supply chains as well.
Rising shipping insurance costs add another layer of pressure. Reuters reports multiple damaged tankers, casualties, and hundreds of ships stalled as war-risk coverage tightens. Major insurers have begun cancelling war risk policies, leaving vessels in the gulf financially and physically exposed. Brooks points out that higher insurance costs translate into higher shipping costs across the board.
Ben Fahmima, an expert in supply chains at the University of Sydney, highlights the lack of viable alternatives to Hormuz. Re-routing ships via longer routes incurs time, expense, and additional risk, while existing pipelines and channels cannot absorb the same volumes. Fahmima warns that sustained disruption would exert continuous pressure on energy markets and global freight rates.
What does this mean for Australia? The conflict has already damaged regional infrastructure and stalled much of the Middle East’s oil and gas production. Australian business travel and trade routes rely on Middle Eastern air hubs for international access, and disruptions ripple through logistics networks. Australia Post has temporarily suspended regional services due to partner airline cancellations, with potential knock-on effects on European deliveries.
Experts agree that Australia will feel the bite of rising energy prices and disrupted freight flows, even if it does not buy directly from the Middle East. If about 20% of global supply is disrupted, prices will rise worldwide. The situation also raises questions for Asia’s major oil-importing economies—Japan, South Korea, and India—whose growth depends heavily on Middle Eastern energy. What does this imply for Australia’s own economy and its important trading partners? It’s a topic worth watching closely, and a strong prompt for discussing how nations can diversify energy and logistics strategies in times of geopolitical strain.
