Losing Hormuz: The Costs of War for Gulf Oil Exporters

Economic Impacts of Strait of Hormuz Closure

The first month of the Iran war following US-Israeli strikes on the country has resulted in serious damage on the economies of Iran’s Arab neighbors in the Persian Gulf, where initial export losses averaged nearly $2 billion per day. The harm was unevenly distributed, however. In at least one oil and gas exporter, government revenues registered a sharp increase. For the wider region, war-driven closure of the Strait of Hormuz has demonstrated the region’s acute economic and physical vulnerability, as well as the risk exposures and costs faced by importers dependent on resources traversing the contested maritime chokepoint.

In normal times, the Strait of Hormuz channels about 20% of global oil exports, with about 15 million barrels per day (mbd) of crude oil shipments and roughly 5 mbd of refined products exports. The strait also handles about 20% of global liquefied natural gas (LNG) cargoes, roughly 86 million tonnes per annum (MTPA).

The strait was all but closed for the entire month of March 2026. Just a trickle of oil and products — mainly Iran’s — traversed the narrow passage. By month’s end, workarounds allowed just over a third of the normal oil flows, or 7.5 mbd, to reach oil markets through a small but critical network of bypass pipelines and from Iranian cargoes that continued to use the strait. Meanwhile, the closure left nearly two thirds of the normal exports of Gulf oil blockaded inside the strait, with oil production in most countries being shut-in due to dwindling options for storage.

Overall, the oil market outage from the war against Iran is unprecedented, the largest in history. But not all Gulf exporters faced dire effects. One, Oman, has been earning windfall profits due to its near-total lack of export exposure to Hormuz, since most of its territory and all its export infrastructure lie outside the Gulf. Iranian exports, too, were up slightly, despite withstanding thousands of US-Israeli attacks. For others still able to reach export markets, albeit in a reduced way, the effects were mixed. The most detrimental effects fell upon Kuwait, Qatar, and Bahrain, with no ability to export via the strait, and no workarounds.

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