What the Strait of Hormuz means for world oil

What will happen to the world's oil production if Iran is able to block the Strait of Hormuz?

Steve Chiotakis: Iran's navy chief said today his country could very easily close the world's most important oil transit channel. In fact, he said it would be "as easy as drinking a glass of water." A fifth of the world's oil passes through the Strait of Hormuz. And the threat to close it comes after the West imposed more sanctions on Iran over its nuclear program.

Manouchehr Takin is a specialist on oil and on Iran at the Centre for Global Energy Studies. He's with us now from London to talk about it. Good morning sir.

Manouchehr Takin: Good morning to you.

Chiotakis: I want you to remind us how important the Strait of Hormuz is to the global oil industry.

Takin: About 15, 16 million barrels per day of oil is transported through the Strait of Hormuz; and out of the world total trade of oil, something about one-third to one-quarter of the world traded oil.

Chiotakis: And what kind of an impact would it have if Iran blocked this strait?

Takin: Well, this is unimaginable. Practically, it just can't happen, because the price of oil will be several hundred dollars a barrel. I think it will be like shooting oneself in the foot for the United States, for industrialized countries. And for the poor developing countries -- the poor countries in the world have to pay more. Everybody would be jumping to buy that supply, whatever is available from other parts of the world.

Chiotakis: Do you think the U.S. threats to block Iranian exports will actually work?

Takin: I don't know. That would be an act of war, because that would mean physically, the U.S. Navy stopping Iranian oil tankers. That is an act of war. And if that happens, then it will be a military story, and that is unimaginable.

Chiotakis: Manouchehr Takin, an oil specialist joining us from London. Mr.Takin, thank you.

Takin: You're welcome.

About the author

Steve Chiotakis was the host of Marketplace Morning Report until January 2012.

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