Introduction
The global oil market is one of the most strategic and sensitive commodity markets in the world, which is highly influenced by geopolitical risks. The concentration of a significant portion of oil supply in the Persian Gulf region and the transit of a large share of it through the Strait of Hormuz have made this market highly vulnerable to regional shocks, especially disruptions in transportation routes. Therefore, the closure of this strait is not only a shock to the energy market but also a serious test for the resilience of the global economy, as energy, being a fundamental input of production, directly affects economic growth, inflation, and financial stability.
Following the initiation of offensive operations by the United States and Israel against the Islamic Republic of Iran, the Strait of Hormuz has been closed by Tehran for an indefinite period. This action has caused a shock to the global oil market, and as a result, oil prices have suddenly risen above one hundred dollars per barrel. This price increase is not only due to the physical shortage of supply but is also driven by market expectations and the behavior of financial actors. A number of energy sector experts have predicted that if this situation continues, the price of a barrel of oil in global markets, especially in Europe, may reach 200 dollars.
In this paper, we examine in an analytical manner how the closure of the Strait of Hormuz affects the global oil market under current conditions, how global strategic reserves can function in reducing the severity of the crisis, how resilient is Iran’s economy and government fiscal system to a prolonged closure of the Strait of Hormuz, and what mechanisms could sustain exports, government revenue, and essential imports during such a crisis, and to what extent the preparedness of the global economy differs from the experience of the 1973 oil crisis.
Structure of the Global Oil Market and Its Vulnerability
At present, according to available data, global oil consumption is around 100 million barrels per day, of which about 20 percent is transported through the Strait of Hormuz. However, due to the existence of alternative pipelines, the volume of supply that is actually exposed to complete disruption is estimated to be around 14 to 15 million barrels per day. This figure alone represents a major shock at the global level, as even smaller disruptions have historically caused significant price volatility.
The East-West pipeline of Saudi Arabia and the Fujairah pipeline of the United Arab Emirates are among the most important alternative routes. However, the limited capacity of these pipelines (around 5 to 6.5 million barrels per day in total) indicates that even under optimal conditions, only part of the lost supply can be compensated.
On the other hand, increasing production outside the Persian Gulf region particularly in the U.S. shale oil sector can play a complementary role. However, such an increase is associated with time lags and depends on multiple factors such as investment, future price expectations, and market stability. Therefore, it cannot fully close the supply gap in the short term.
Overall, even after accounting for all alternative capacities, the global market will still face a daily shortage of around 10 to 12 million barrels. Given the low elasticity of demand, such a deficit directly leads to a sharp increase in prices. This price increase itself acts as an adjustment mechanism, gradually restoring relative balance in the market through reduced consumption.
The Role of Strategic Reserves as a Shock Absorber
Strategic oil reserves have been designed as a key policy tool to mitigate the effects of supply shocks. The total volume of these reserves worldwide is estimated at around 4 to 5 billion barrels.
In times of crisis, these reserves are mainly released in coordination with the International Energy Agency (IEA), and they can inject several million barrels per day into the market for a few months. The importance of these reserves lies in their ability to prevent sudden shocks and panic-driven behavior in the market. It means that theoretically the strategic reserves of 4–5 billion barrels could cover a global shortage of 15 million barrels/day for roughly 267–333 days.
However practically and based on realities, limitations in daily release capacity and political considerations mean that their role is primarily to reduce the severity of the crisis and manage volatility, rather than to fully replace lost supply. In other words, this tool buys time for other market mechanisms such as increased production and reduced demand to take effect. In this stage, a deep cooperation between countries and markets is needed that can increase the role of global governance.
Scenario of a Six-Month Closure of the Strait of Hormuz
If the closure of the Strait of Hormuz continues for six months, the reduction in global supply would be around 14 to 15 million barrels per day, equivalent to 14 to 15 percent of the global market. This level of disruption would affect not only the energy market but the entire global economy, as rising oil prices directly increase production, transportation, and supply chain costs.
Under such conditions, oil prices may rise rapidly. A range of 150 to 200 dollars can be considered a likely scenario, while higher levels (up to around 250 dollars) are possible under severe conditions. This increase is driven not only by supply shortages but also by inflation expectations and activity in financial markets.
A sharp increase in oil prices, in turn, leads to higher global inflation, reduced purchasing power of consumers, and ultimately slower economic growth. In such a situation, even oil-producing countries may face economic challenges due to market instability and declining global demand.
Comparison with the 1970s Oil Crisis
In the 1970s, global oil consumption was around 50 to 65 million barrels per day, whereas today it has reached approximately 100 million barrels per day.
During the 1973 oil crisis, supply reductions occurred in a context where strategic reserves were almost nonexistent. This led to a rapid transmission of the oil shock into economic recession in many countries.
In contrast, the global economy today has more tools to manage such crises conducting immediate stabilization effect. Strategic reserves, relative diversification of energy sources, and historical experience are all factors that can reduce the severity of the crisis, although they cannot fully neutralize it.
Beyond the immediate stabilization effect, global governance can play a crucial role in maximizing the impact of strategic reserves. Coordinated international release strategies can prioritize vulnerable countries and regions that are highly dependent on imported oil, ensuring continuity of essential services and industrial production. Effective governance also helps maintain the integrity of global production lines, prevents cascading economic shocks, and strengthens confidence in energy markets, demonstrating that while reserves cannot fully offset major disruptions like a prolonged closure of the Strait of Hormuz, they remain a vital tool for mitigating risk and supporting global energy security.
Iran’s Oil, Exports, Revenues, and Foreign Reserves: A Comprehensive Overview
Iran’s economy is strongly shaped by its energy sector, particularly oil and petrochemicals, which dominate exports, government revenues, and foreign currency inflows. According to World Bank data, Iran’s total exports of goods and services reached about $100 billion in 2024, equivalent to roughly 23 percent of GDP. Historically, this ratio has fluctuated between 20 percent and 35 percent, depending mainly on oil prices and international sanctions.
A large majority of Iran’s export earnings comes from hydrocarbons. Oil exports alone generate approximately $56–67 billion annually, while petrochemical exports contribute an additional $12–18 billion per year. Together, oil and petrochemicals account for about 70–85 percent of Iran’s total exports, making the country highly dependent on the energy sector. This translates into a combined contribution of roughly 20–25 percent of GDP, confirming the central role of hydrocarbons in the Iranian economy.
Geographically, Iran’s export system is heavily dependent on the Strait of Hormuz. Around 90–95% of Iran’s crude oil exports pass through this route, along with 70–85 percent of petrochemical exports. Overall, an estimated 70–80 percent of Iran’s total exports rely on this strait, making it both a strategic vulnerability and a geopolitical leverage point.
Despite high export revenues, the Iranian government captures only part of this income. According to IMF-based data, Iran’s government revenue is about $43 billion annually (2024), representing roughly 10 percent of GDP. Government spending is higher, around $59 billion, resulting in a persistent fiscal deficit. The structure of government revenue shows continued reliance on natural resources: oil and related income make up roughly 50–60 percent of public revenues, while taxation contributes only about 20–30 percent, reflecting a relatively low tax base compared to many other economies.
Iran’s external financial position is also shaped by its foreign exchange and gold reserves. Total reserves (including gold and overseas deposits) are estimated at around $26 billion in 2024, with projections reaching $34 billion in 2025. However, not all of these reserves are accessible. Due to international sanctions, Iran’s usable reserves are significantly lower, at approximately $21–24 billion. A crucial constraint on Iran’s financial system is the large volume of assets frozen or restricted abroad. It is estimated that $80–100 billion of Iranian funds remain blocked in foreign accounts due to sanctions. In practice, Iran effectively operates with access to only a fraction around 20–25 percent of its potential foreign reserves.
If the Strait of Hormuz were to remain closed for six months, Iran would face a severe economic shock. Since 70–80 percent of its exports rely on the strait, including 90–95 percent of oil exports, the country could lose $35–40 billion in export revenue over six months, causing government revenue to collapse by 25–35 percent. With usable reserves of only $21–24 billion, the government could cover only a few months of spending and essential imports, while the economy would likely enter a deep recession with GDP contracting 15–20 percent, accompanied by soaring inflation and currency depreciation. In such a scenario, Iran would rely on emergency measures such as drawing down reserves, increasing domestic money supply, expanding trade via land routes, and black-market oil sales to sustain government operations, highlighting the country’s acute vulnerability to disruptions in its maritime export routes.
Conclusion
In summary, the closure of the Strait of Hormuz, due to its critical role in global energy flows, has led to a sharp increase in oil prices and instability in global markets. This shock transmits to other sectors of the economy through higher energy costs, resulting in inflationary pressures and slower economic growth.
However, unlike the 1970s, the existence of strategic reserves and improved crisis management mechanisms has reduced the likelihood of a complete collapse of the global economy. Nevertheless, the probability of a severe global recession remains high, especially if the situation persists for an extended period. Ultimately, strategic reserves and gradual increases in supply can only help reduce the severity of the crisis, while a full restoration of market stability depends on the resolution of supply disruptions and demand adjustments.
At the same time, Iran’s economy is deeply characterized by strong export earnings driven by oil and petrochemicals, but also by significant structural constraints. While exports reach about $100 billion annually, government revenue remains limited, a large share of foreign reserves is inaccessible, and the country’s heavy reliance on the Strait of Hormuz underscores both its economic dependence on a single trade route and its strategic importance in global energy markets.