So, the Strait of Hormuz is closed. You know, that little strip of water between Iran and Oman that happens to handle about one-fifth of the world's oil and liquefied natural gas shipments. It's kind of a big deal. And now, the folks at J.P. Morgan (JPM) have run the numbers on what happens next, and it's not pretty for a couple of major oil producers.
According to their analysis, cited by Reuters, if the strait stays shut, we could see a cut of 3.3 million barrels of oil per day by the eighth day. The countries in the crosshairs? Iraq and Kuwait, who send almost all their crude out through this vital passage connecting the Persian Gulf to the open ocean.
Here's the timeline: J.P. Morgan figures Iraq could be forced to halt operations in as little as three days. Kuwait might hold out a bit longer, but they'd likely be stopped within about two weeks. If the closure drags on, the losses get worse—ramping up to 3.8 million barrels per day around day 15 and hitting 4.7 million barrels per day by day 18. That's a lot of oil suddenly not going anywhere.
Two Iraqi oil officials told Reuters the math checks out: Iraq would have to slash its oil production by over 3 million barrels per day in the coming days if tankers can't get through to loading ports. When you're that reliant on one exit, and someone locks the door, you're stuck inside.
Oil Prices Are Already Climbing
Markets, of course, hate this kind of uncertainty. Iran declared the strait closed on Monday, warning that any vessel trying to pass would be attacked or set on fire. Not exactly subtle. The immediate result? Oil prices jumped. When last checked, WTI Crude futures were trading 2.71% higher at $76.50 per barrel.
Over in Washington, Secretary of State Marco Rubio indicated the administration had seen this coming—a conflict in the Middle East tends to do that to oil prices—and had a plan ready to try to cushion the blow. He said the plan would be implemented by Energy Secretary Chris Wright and Treasury Secretary Scott Bessent.
And President Donald Trump took a step on Tuesday, ordering the U.S. Development Finance Corporation to provide political risk insurance and financial guarantees for all maritime trade transiting the Strait of Hormuz. It sparked a bit of a relief rally in the markets. The message seems to be: if you're brave enough to send a ship through, we'll help back you up.
It's a high-stakes game of chicken in one of the world's most important shipping lanes. For now, the oil is backing up, the prices are ticking up, and everyone is watching to see how long the door stays shut.
