Note: This article covers the historical and current strategic significance of the Strait of Hormuz. It is written for informational purposes and does not constitute financial advice. Our thoughts and prayers remain with all those affected by the ongoing conflict.
Twenty-one miles wide at one point: that’s how wide the Strait of Hormuz is, the oil shipping channel between the Persian Gulf and the rest of the world’s oceans. But 21 miles long in another sense: 21 miles between some of the world’s oil richest fields and the markets that crave that oil. The Strait was already a choke-point for global energy, but 2006 has brought a new awareness of its vulnerabilities.
For the Muslim investor, understanding the history of Hormuz is critical to making sense of what is transpiring in today’s markets and the potential developments in tomorrow’s marketplace. The ebb and flow of change largely emanates from this corridor, affecting countries situated in the Muslim world where Hormuz is located. As a result, what transpires in this location affects individuals like yourselves queuing to buy fuel in Karachi, waiting for the electricity to turn on in Dhaka, or feeling helpless when the cost of essential food items skyrockets in Cairo, Jakarta, Kuala Lumpur and the rest of the Ummah. It is important to comprehend this.
A Waterway Older Than Oil
A 32km wide channel, the Hormuz strait, through which billions of barrels of oil are shipped every year, has long been considered a crucial piece of global geography. But the Iranian peninsula at the mouth of the Gulf was a vital crossroads long before oil became the lifeblood of international trade. In the 11th century, a merchant called Muhammad Diramku is said to have travelled across the Gulf and founded the Kingdom of Hormuz on the Iranian shore. By the 15th century, the island of Hormuz itself - two square kilometres of coral reef - had become a hub of commerce, a cosmopolitan centre attracting merchants from Egypt, China, Bengal, Zanzibar and even from faraway Venice. The famous explorer Marco Polo is said to have visited the port twice, while Chinese Admiral Zheng He included Hormuz in the itinerary of his famous treasure fleet voyages.
The Persian port of Hormuz was seized by Portuguese navigator Alfonso de Albuquerque in 1515. But soon Albuquerque realised that control of this narrow and crucial waterway was control of the trade of the entire Indian Ocean. This pattern that Albany observed 5 centuries ago has repeated itself in the Hormuz Island and is still active today.
The Oil Era: How Hormuz Became the World's Most Critical Chokepoint
The Hormuz waterway has only recently earned its place as one of the world's most strategic shipping lanes. It was in the mid-1960s that the Very Large Crude Carriers (VLCCs) started to become the norm in the tanker industry. The producers of the world's oil - most of it located in the Middle East - found they could now supply customers on the far side of the world by shipping enormous quantities of crude oil on long treks through the narrow channel. A blockage in 1967 that had once posed a marginal threat to the supply of a few million barrels a day suddenly became a threat to the supply of hundreds of millions.
It was during the 1973 oil embargo proper, when the Strait of Hormuz was not actually closed, that I realized the world could not function with out Gulf oil. This brief look at the geopolitics of oil provides a sobering view of the new reality. Oil became a macroeconomic variable with Hormuz as the valve.
The Tanker War: When Hormuz Was Tested (1984–1988)
There was first military use of the strait for attacking transit in the Iran-Iraq War of 1980-88, specifically in 1984 when both sides attacked commercial shipping in what became known as the Tanker War. Iraq attacked Iranian oil terminals and oil tankers in a bid to deny Iran revenue from oil sales, while Iran attacked ships of other countries that were supporting Iraq. Even before a direct attempt to block the entrance to the Gulf in 1987-8, however, the mining of Gulf waters and attacks on ocean going oil tankers turned the entrance to the Gulf into a practical chokepoint, due to the risk involved and the costs of insurance. This situation has recurred in 2026.
When Iraq invaded Kuwait, the United States and other Western navies took on the task of escorting dozens of oil tankers every day through the Strait. Code-named Operation Earnest Will, the experience provided lessons for history. Now, as Russian military forces are massing in the vicinity of Ukraine’s Crimean Peninsula, that lesson is about to be tested again. Will the great powers of today go to great expense, expend enormous efforts, and put their troops in jeopardy to assure that transit continues even in the midst of war?
The 1990s Through 2010s: Threats Without Closure
Iran has in the 1990s and early 2000s threatened to block the Hormuz Strait, which is just 30 miles wide, during nuclear talks or as it faced mounting sanctions. The U.S. pledged forceful measures to prevent such a move, and the oil markets would often soar at mere speculation that the Strait could be shut down. But it never was.
The flow of oil through the Strait of Hormuz at end of 2022 accounted for more than a quarter of global seaborne oil trade and one fifth of global oil and petroleum products demand. A similar proportion of global demand was shipped as LNG with approximately one fifth of global trade flowing through the Strait, almost all of it sourced from Qatar. While Saudi Arabia and the UAE have alternatives that are pipelines rather than straits, they are the only producers that have sufficient infrastructure to move alternative quantities on a long term basis, ranging from 3.5-5.5 mb/d, equivalent to the strait’s normal usage of 20 mb/d.
3 seems a fittingly disappointing number in this context – big on paper but woefully short in reality. You can bet that the potential capacity was one of the main factors that people thought would be enough to enable a bypass in time to head off the proposed 2026 closure. Won’t happen.
2026: The First Real Closure
An Iranian Islamic Revolutionary Guard Corps official on 2 March 2026 announced: 'The strait is closed'. This was the first time the phrase which Iranian officials have used periodically since 2007 was actually acted on - through a combination of war, mining of the waterway, withdrawal of marine insurance, and attack on ships in transit. Within 36 hours, both of the world's two largest container lines, Maersk and CMA CGM, announced that they would not transit the strait, soon to be followed by other of the world's top ten container lines, including Germany's Hapag-Lloyd. Brent crude jumped over US$10 on 8 March to hit a four-year high of US$100 a barrel - to be followed by an even steeper increase, peaking at US$126 a barrel by late March.
A plunge in global oil production caused by the recent attack on the world's oil market was the largest in history, the International Energy Agency (IEA) said on Friday. Some 40 major oil assets around the world were severely damaged in the attack, mostly in Iran, which has the world’s second-largest oil reserves. Gulf oil producers including Saudi Arabia were forced to slash production not because of immediate well-shut ins, but because a week-long halt to oil shipments and the struggle to fill storage tanks could last for weeks. The IEA on Friday releaser 400 million barrels from its emergency oil stocks, the biggest amount ever tapped from the strategic reserve, but it seemed unlikely to be enough to tame the dramatic disruption caused by the attack.
Why the Bypass Options Are Not Enough
Saudi Arabia’s East-West pipeline could theoretically be used to redirect 5 million b/d down to the Red Sea, but since late 2023 Houthi attacks have consistently precluded any such move, and the latest attacks have grown significantly more damaging. The UAE’s Fujairah pipeline could theoretically shift 1.5 million b/d from Abu Dhabi to the other side of the Arabian Peninsula, but so far that has not happened. Iraq, Kuwait and Qatar have no pipeline to speak of that could be used to divert their oil. The sum of 3.5 to 5.5 million b/d is less than a quarter of the 20 million b/d typically flowing through Hormuz.
This week an analysis from Al Jazeera brought home a very simple yet profound point to us all. We have built a system of production which spans the globe and, indeed, assumes the continuance of open access to the strait of Hormuz. But when assumptions are shown to be faulty we are also forced to examine the limits of the strategic foresight of those who run the world. Hormuz is about more than just the oil which passes through it. It is the pipeline and lifeline of globalised production. Britain's aortic valve has recently been highlighted in the context of sporting failure. Hormuz is the aortic valve of globalised production. It failed. Big time. We have been asked to comment on what this does for Muslim investors in the longer term. Unlike some of the more recent Muslim investors, there are a number of lessons that can be learnt from those who have taken a long-term view. Historically, there have been several Muslim investors that have taken a long-term view and thus we can draw a few structural conclusions for those intent on taking a similar perspective.
What This Means for Muslim Investors Over the Long Term
There is little reason to get excited about the potential for escalating conflict in the waterway through which the world's oil tankers pass. For fifty years, the possibility of war through the Hormuz waterway has been a permanent fixture of the global investment environment, rather than a series of episodic disturbances. With conflicts that have ongoing implications that transcend the politics of the day, it is difficult to imagine that the current round of bloodletting will be brought to an end by talks taking place across the waterway. So, the default bet on energy prices for the foreseeable future will be that supplies will continue to come from the Gulf - with the odd bump along the way.
The shock will also induce a second structured transformation in the energy industry as energy producers and consumers will be required to seek alternative sources of energy outside of their present supply chains linked to the Hormuz Traffic. By 2026, Muslim investors will view this new shock as being economically sensible and indeed compliant with the Islamic principles of avoiding harm (dharurah). Most importantly, the shock will induce a second major structured transition in the energy supply as producers and consumers are required to seek alternative sources and supply chain strategies outside of the Hormuz Traffic. The IEA, Oxford Economics and most of the investment banks are modelling the shock to result in a permanent and accelerated increase in investment in the Atlantic Basin and other alternative supply sources and in renewable energy sources.
Third, historical data also supports gold’s performance as a monetary hedge in times of conflict in Hormuz. In each of the major conflict episodes, whether the so-called Tanker War of the early 1980s, the 1990 Gulf War, the 2019 series of incidents upon oil tankers, or the 2026 versions thereof, gold has proven itself as a store of value as energy-linked inflation has soared. To Muslim investors, gold is the most basic form of wealth forever and that is in line with the classical Islamic perspective.
Conclusion
The sea passage known as the Strait of Hormuz for over a thousand years has determined the economic fate of the Muslim world. Today, as conflict rages across the narrow waterway between Iran and the Arabian Peninsula, that passage has been seized by two groups in a life-or-death struggle over the Strait of Hormuz, unleashing the most severe energy crisis the world has experienced and affecting the economies of Muslim nations from Asia to Africa.
History to the historian is more than just a stream of factual information; to the investor history provides a reality check and forms the basis of sensible investment decisions discribing the real world as opposed to the world of fantasy that the stock market often represents.
And Allah knows best — آمين
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Nusrat Ahmed