Liberia-flagged tanker Shenlong Suezmax, carrying crude oil from Saudi Arabia, that arrived clearing the Strait of Hormuz, is seen at the Mumbai Port on Thursday.Rafiq Maqbool/The Associated Press
Mitch Heimpel is the former director of parliamentary affairs to Erin O’Toole in the Office of the Leader of the Opposition, and is now vice-president of government relations at Texture Communications.
For all intents and purposes, the Strait of Hormuz is closed. For Canadians, this is directly hitting the price at the pump. The cost of goods at grocery stores and hardware stores will follow.
In the United States, affordability remains a major issue for voters. This will put those concerns into overdrive. The reason the Democrats have been slow-walking any approval, or dissent, for the war against Iran is almost surely because they want to see the Republicans wear as much of this as possible ahead of the November midterms.
If the war grinds on, President Donald Trump may be faced with an uncomfortable question about what he wants more: the defeat of the regime in Tehran, or a Republican Congress come 2027.
World faces largest oil supply disruption in history, IEA says
We know that the Iranian military has taken action through missile strikes to effectively close the strait. There has also been mixed reporting regarding Iran’s placement of underwater ordnance (mines, in civilian terms).
On an average day in peacetime, between 183 and 188 major cargo vessels travel through the Strait of Hormuz. This shipping accounts for approximately 20 per cent of daily global oil traffic.
Countries can, in theory, best missile systems with air superiority. The Americans are trying to do just that with its Air Force and the air wing operating off the USS Abraham Lincoln. Mines are different story. They’re a great example of asymmetrical warfare, with some basic contact mines costing as little as $1,500 – a drop in the bucket compared with a US$3.6-million Tomahawk missile.
The American military has not confirmed that the Iranians have mined the strait, but observers believe that to be the case. It provides the best explanation for why the U.S. Navy is refusing tanker escorts through the passage. Risking a US$4.4-billion destroyer against inexpensive mines is a terrible trade for the Navy. It’s also a terrible trade for the war effort. An American Navy vessel struck by an Iranian missile, or scuttled by an Iranian mine, is a major propaganda win for the regime in Tehran.
Iran’s new Supreme Leader vows to keep Strait of Hormuz closed
This presents a problem for global oil markets. Canadians are all too aware of the familiar pattern: When oil prices get too high, the Organization of Petroleum Exporting Countries (OPEC) increases production to increase supply and lower prices. This has the side effect of discouraging new domestic exploration and production in North America.
However, increasing production doesn’t help if you can’t move product. Even if most of the market is still operating, 20 per cent of global daily supply is not easy to replace. That’s why the International Energy Agency is talking about releasing strategic oil reserves such as those in Canada and the United States, and why oil prices continue to be volatile.
The IEA is talking about releasing 400 million barrels – more than twice what it released when Russia invaded Ukraine in 2022. Doing so is not a long-term solution, though. It’s pressure relief.
The release of strategic reserves may, temporarily, also stabilize the global price. But if the war continues and the strait is functionally closed, oil prices will start to reflect the constraints placed on moving supply out of the Gulf. Gas prices will go up. Food prices will go up.
This could not be happening at a worse time for farmers in North America. Planting season – which requires a lot of oil – is about to start across most of the continent.
For context, prior to Moscow’s 2022 invasion of Ukraine, Russia accounted for a little less than 11 per cent of daily global oil production. The 20 per cent that ships through the strait is almost double that. And everyone can remember governments from Ottawa to Brussels blaming the conflict for inflation.