From Singapore: The geopolitical risk that energy markets have been pricing in for months crystallised violently on Saturday. Joint US-Israeli strikes on Iran killed Supreme Leader Ayatollah Ali Khamenei, according to Iranian state media, which declared a 40-day period of national mourning. Within hours, Iran's Revolutionary Guard began broadcasting warnings to vessels in the Persian Gulf that the Strait of Hormuz was effectively closed to transit. For Australian motorists, the message at the bowser could not be clearer: fill up now.
The Strait of Hormuz, the narrow channel linking the oil-rich Persian Gulf to the Gulf of Oman, is the single most consequential chokepoint in global energy trade. According to the US Energy Information Administration, roughly 20 million barrels of oil flow through the strait every day, representing about one-fifth of total global daily consumption. At its narrowest, the passage is just 33 kilometres wide. Iran controls the northern shore.
An official from the European Union's naval mission Aspides told Reuters that vessels in the region had received radio transmissions from Iran's Revolutionary Guard stating that "no ship is allowed to pass the Strait of Hormuz". Several oil companies and trading firms have already paused shipments of crude oil and fuel through the waterway, Reuters reported, citing trading sources. Oil tanker traffic has largely stalled. It was unclear how long a disruption might last, though a prolonged stoppage would trigger a spike in oil prices and potentially destabilise the global economy.
What it means at the bowser
Australian energy analyst Saul Kavonic, cited by 7News, has warned of potential petrol price rises of between 20 and 40 per cent in coming weeks if Iran succeeds in disrupting passage through the waterway. "If things go badly in the Middle East, we could see our worst oil shock since the 1970s," Kavonic said. Andy Lipow, president of consulting firm Lipow Oil Associates, told CNN that oil prices could increase by at least US$5 per barrel when markets reopen on Sunday, with further upside if Saudi oil infrastructure comes under attack. Brent crude, one of the main global oil price benchmarks, settled near US$73 per barrel on Friday before markets closed. Swiss bank Lombard Odier has said a temporary spike to US$100 per barrel, or beyond, is plausible, with global LNG prices also affected if Iran moves to block the strait.
Australia's exposure is less direct than it might appear, but no less real. Only about 15 per cent of Australia's crude oil and 5 per cent of petroleum products are imported directly from Middle Eastern countries, but around 30 per cent of Australia's refined oil effectively transits through the Strait of Hormuz, because Australia sources refined fuel from South Korea and Singapore, where refineries process Gulf crude. If those key suppliers are affected by the closure, there could be significant flow-on effects for the country's oil supply. Oil is priced globally in US dollars, meaning a weaker Australian dollar compounds any crude price increase directly at the pump.
Asia is the epicentre
The trade implications for Australia are direct: the economies that would bear the sharpest pain from a Hormuz closure are the very markets on which Australian exporters depend. The EIA estimated that in 2024, 84 per cent of crude oil shipments transiting the strait headed to Asian markets, along with 83 per cent of LNG volumes. China, India, Japan and South Korea collectively accounted for 69 per cent of all crude flows through the strait, and their factories, transport networks, and power grids depend on uninterrupted Gulf energy.
China, the world's second-largest economy, receives half of its crude imports from the strait. 9News reports that China sourced 5.4 million barrels per day through the strait in the first quarter of this year alone, while India and South Korea imported 2.1 million and 1.7 million barrels per day respectively. Any disruption to energy flows through Hormuz would drive up fuel and factory costs, especially as China leans on manufacturing and exports to sustain its economic growth, with higher energy prices likely to be passed along supply chains and to consumers. For Australian iron ore, coal, and agricultural exporters, slower Chinese industrial output is a direct threat to demand.
"A prolonged closure of the Strait of Hormuz is a guaranteed global recession," warned Robert McNally, an oil market analyst cited by CNBC. The concern is not merely one of price. The world's spare oil production capacity sits in Gulf states and would be unable to reach markets if the strait closed; roughly 20 per cent of the world's LNG exports, mostly from Qatar, would also be sealed off.
A crisis with partial cushions — and hard limits
The counterargument to worst-case thinking is real and worth taking seriously. Iran has long wielded the threat of closing the strait as a diplomatic weapon without ever fully acting on it, and it retains powerful economic incentives not to do so: Iran's own economic dependency on energy exports through the strait creates a fundamental strategic paradox, since the country requires export revenue to finance basic government operations and domestic energy infrastructure, making a prolonged closure economically unsustainable. Alternative pipeline routes do exist. Both Saudi Arabia and the UAE have established pipelines that could bypass the strait if it is closed or compromised; Saudi Arabia's can carry five million barrels per day and the UAE's 1.5 million barrels per day, compared with their production capacities of nine and 3.3 million barrels per day respectively, meaning bypass capacity would cover only a fraction of normal output.
The political situation in Tehran adds another layer of complexity. The future of Iran is deeply uncertain and the risk of regional instability is heightened following Khamenei's death in the coordinated attack. Iran's National Security Advisor Ali Larijani has convened an interim leadership council. Whether a new leadership seeks a rapid de-escalation or opts to intensify retaliation will shape the trajectory of oil markets for weeks, possibly months. As one senior Arab diplomat told The Times of Israel, "Iran knows that the US wants this military campaign to end as quickly as possible and will seek to drag it out."
For Australian consumers, the honest answer is that the range of outcomes remains extraordinarily wide. A swift diplomatic intervention or successful US Navy action to keep tanker lanes open could see prices stabilise. A sustained disruption would feed through to the bowser within a fortnight, given the roughly 10 to 14-day lag between global crude moves and Australian retail prices. What is clear, from Singapore to Sydney, is that the risk is now more acute than at any point in the past decade. Prudent households and businesses that depend on fuel-intensive logistics have good reason to plan for the more costly scenario, even as they hope for the more manageable one.