Hey,

For years, the closure of the Strait of Hormuz was a theoretical risk — the kind of scenario analysts modeled but nobody seriously expected. As of now, it is no longer theoretical.

The Strait of Hormuz connects the Persian Gulf to the Indian Ocean. At its narrowest: 34 kilometers wide, with two shipping lanes of just 3.2 kilometers each. Through those 6.4 kilometers of navigable lane: 20 million barrels of oil per day — 20% of global petroleum consumption. One-fifth of all global LNG trade. No alternative route exists for Iraq, Kuwait or Qatar. The bypass pipelines operated by Saudi Arabia and the UAE cover a combined 3.5 million barrels per day — roughly 17% of normal flow. The remaining 83% has nowhere to go if the strait closes.

What makes Hormuz categorically different from every other chokepoint: it carries almost exclusively energy. The Suez Canal handles diversified cargo. Bab el-Mandeb moves containers and bulk. Hormuz moves hydrocarbons — the kind of cargo that, when blocked, doesn't just disrupt supply chains. It cuts the energy backbone of the global economy.

The crisis began on February 28, 2026, following joint military strikes by the United States and Israel on Iran under Operation Epic Fury, targeting military facilities, nuclear sites, and leadership — resulting in the death of Supreme Leader Ali Khamenei. In response, Iran launched retaliatory missile and drone attacks on Israeli territory and U.S. military bases in Gulf states, while its IRGC issued warnings prohibiting vessel passage through the strait.

Seven days in, the numbers have gotten worse, not better.

Vessel traffic through the Strait of Hormuz dropped from an average of 138 ships per day to just two in the 24 hours to Thursday, March 6 — and neither of those two vessels was a tanker. The Joint Maritime Information Center described it as a "near-total temporary pause in routine commercial traffic," assessing the regional maritime risk environment as critical, with "no confirmed indicators of de-escalation."

At least five tankers have been struck, two crew members killed, and approximately 150 ships anchored outside the strait awaiting resolution. Maersk, MSC, Hapag-Lloyd, CMA CGM, and COSCO have all suspended transits.

QatarEnergy halted LNG production at its Ras Laffan and Mesaieed Industrial City facilities after Iranian drone attacks — directly threatening the 12 to 14 percent of European LNG supply that originates there. Iraq, unable to export crude through the closed strait, has begun shutting down production at some of its largest oil fields. Brent crude reached $90 per barrel on March 6 — up more than 21 percent from the pre-war close of approximately $73. Wood Mackenzie now assesses $150 oil as possible if the closure is sustained.

There has also been sophisticated interference with GPS signals, affecting navigation and communications in the area. Vessels have resorted to broadcasting their nationality or ownership in attempts to signal neutrality — one bulk carrier exited the strait broadcasting "CHINA OWNER," an LPG tanker declared itself "Muslim-owned and Turkish-operated." These are not signs of a situation moving toward resolution.

War risk premiums jumped from 0.2% to 1% of vessel value in 48 hours. For a $100M ship, that's the difference between $200,000 and $1,000,000 per voyage. Major marine war risk insurers — including Gard, Skuld, NorthStandard, the London P&I Club, and the American Club — cancelled war risk coverage for vessels operating in the region, making commercial transit economically non-viable even for operators willing to accept the kinetic risk.

Without coverage, ships don't move — regardless of what owners or charterers want. Port authorities, banks, and regulators all require valid insurance as a condition of operation. The insurance market, not the military situation, is what physically stops global shipping.

Trump said the U.S. Navy would start escorting tankers through the strait if necessary — but traffic has remained at a near standstill, and it's unclear if any tankers have taken the government up on its offer. The CEO of Seanergy Maritime captured the industry's position precisely: the offer of escorts is a "welcome step," but normal traffic won't resume until companies are confident the trip is "genuinely safe." The priority, he said, is "not just moving cargo, but protecting the lives of seafarers, the value of vessels, and avoiding what could become a major environmental disaster if a tanker were seriously hit in such a narrow and sensitive waterway".

The benchmark VLCC freight rate from the Middle East to China hit an all-time record of $423,736 per day — up 94% from pre-war levels.

Scenario 1 — Short disruption (days to 2 weeks) My assessment: Low. This was already the optimistic case last Sunday. Seven days in, with no de-escalation signals and Iraq shutting oil fields, it looks even less likely.

The hypothesis: U.S. and Israeli strikes successfully degrade Iran's capacity to threaten shipping, military pressure forces de-escalation, traffic resumes quickly. The problem is that Iran achieved the effective closure of the strait not with a naval blockade but with cheap drones — and that capability is distributed, dispersed, and hard to fully neutralize. On the Iranian side, dual signals have emerged: CNN reported Iranian intelligence sent a back-channel message to the U.S. indicating possible openness to talks, while Foreign Minister Araghchi publicly rejected negotiations — suggesting factional competition in Tehran between those who see negotiation as survival and those who see it as capitulation. That is not the profile of a situation that resolves in days.

Scenario 2 — Extended disruption (weeks to months) My assessment: High. The most likely trajectory, and the most dangerous precisely because it's sustainable for Iran.

Iran doesn't need to formally close the strait to paralyze it — it just needs to make the risk calculus unworkable for commercial operators. It has already achieved that. Ali Vaez, director of the Iran project at the International Crisis Group, put it directly: "Closure of the Strait of Hormuz would disrupt roughly a fifth of globally traded oil overnight — and prices wouldn't just spike, they would gap violently upward on fear alone. The shock would reverberate far beyond energy markets, tightening financial conditions, fuelling inflation, and pushing fragile economies closer to recession in a matter of weeks".

Mines, drone attacks, and IRGC harassment create an environment where any transit is a calculated gamble with a $100M+ asset and human lives. Brent is already at $90. Wood Mackenzie has $150 on the table if the closure is sustained. Every tanker rerouted around the Cape adds cost that flows directly into energy prices globally. This is where I place my assessment — and the data from the last seven days has only reinforced it.

Scenario 3 — The Double Chokepoint My assessment: Medium — and rising. This was a tail risk one week ago. Today it is partially a reality.

Regular Sunday Compass readers will remember covering the Houthi crisis and its impact on Red Sea shipping back in 2024. The difference now is scale — and the double chokepoint is no longer hypothetical. The simultaneous effective closure of both Hormuz and the Red Sea-Bab el-Mandeb route — due to resumed Houthi attacks on shipping — has already eliminated both primary maritime routes connecting Persian Gulf production to global markets. OPEC+ retains approximately 3.5 million barrels per day of spare capacity concentrated in Saudi Arabia and the UAE, but cannot deliver it to global markets while the strait remains closed.

ACLED analysts assess controlled, incremental Houthi escalation as the most likely trajectory — starting with symbolic actions focused on commercial shipping. That means the double chokepoint doesn't need to be a coordinated, formal blockade. It just needs both straits to remain functionally unusable — which is already the case as of this Sunday.

This is not a prediction. It is a scenario that has partially materialized. The organizations that prepared for it are already ahead.

The chain of consequences runs in one direction, and it accelerates at each step.

Carriers reroute around the Cape of Good Hope. Longer sailing distances absorb vessel capacity that has been in chronic oversupply since 2023 — freight rates recover, and the margin compression that has defined the post-COVID shipping cycle begins to reverse. For carriers, the short-term rate picture is paradoxically positive.

But the chain doesn't stop there. Higher freight rates translate into higher landed costs for goods. Higher energy costs — Brent up 21%, European LNG up nearly 50% — filter into every energy-intensive industry: manufacturing, transport, food production, chemicals. U.S. gas prices topped $3.19 per gallon on average by Wednesday, up 22 cents from one week prior. Central banks that spent three years fighting post-COVID inflation now face a new supply-side shock with no monetary policy tool that can fix a blocked strait.

And then demand falls. Slower economies buy less. Lower volumes hit carriers precisely when their cost base has expanded from rerouting. Xeneta chief analyst Peter Sand captured the compounding effect: "We are five days into the crisis — and on any given day 14,000 FEU containers would be heading from around the world into the Middle East, half of which have an origin in Asia. We will shortly see this in the numbers for congestion, yard density, transit times going up, and carrier schedule reliability going down."

The short-term rate spike does not compensate for a structural demand slowdown. And we are, as of today, seven days into what is beginning to look like a structural disruption.

I've spent a decade in maritime logistics — starting as a shipping agent, moving through procurement, now heading into commercial. I've processed surcharge after surcharge through the Houthi crisis, watched carriers reroute fleets overnight, seen the industry absorb shock after shock.

But what is happening in the Strait of Hormuz this week is different in kind, not just degree. The Red Sea crisis disrupted a major trade corridor. A sustained Hormuz disruption — now compounded by a simultaneous Houthi reactivation in Bab el-Mandeb — cuts the energy backbone of the global economy across two fronts simultaneously. As Kevin Book of Clearview Energy Partners put it: "When analysts have looked at the things that could go wrong in global oil markets, this is about as wrong as things could go at any single point of failure."

The organizations that survive these moments are not the ones that react fastest. They are the ones that modeled the scenario before it arrived. If your contingency planning didn't include a Hormuz closure six months ago, it needs to include the double chokepoint variant today.

This is exactly what Sunday Compass exists for. Not just to report what happened, but to give you the framework to think about what comes next.

Talk soon,

Fer

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