The Strait of Hormuz Crisis, Energy Security, Strategic Reserves, and the Precarious Calculus of War
As the West Asia Conflict Enters Its Third Week, the World Grapples with the Largest Oil Supply Disruption in History
Before the war in West Asia, a fifth of the world’s oil and gas demand passed through the Strait of Hormuz. Two weeks on, that flow has slowed to a trickle, with the International Energy Agency flagging what it calls “the largest supply disruption in the history of the global oil market.” The strategic waterway between Iran and Oman, through which nearly 20 per cent of global oil consumption once flowed, has become a chokepoint of a different kind—a bottleneck where energy security meets military confrontation, and where the world’s major economies confront their vulnerability.
The visuals on television of burning oil tankers are dramatic. The oil markets, hyper-sensitive to every development, have responded with extreme volatility, sending prices on a wild ride between $70 and $120 per barrel over the past two weeks. The IEA’s announcement of a release from strategic reserves was meant to calm markets, but it was a moot point whether that would help at this stage. The markets are reacting out of fear more than any evaluation of supply and demand.
To understand what is happening and what might come next, we turn to Ajay Singh, an energy and shipping industry executive based in Tokyo, who unpacks the complex dynamics of the crisis.
The Strategic Reserve Buffer
The immediate question for any major economy is how long it can withstand a disruption of this magnitude. The answer, surprisingly, offers some grounds for reassurance. The major consuming economies have sufficient reserves to last several weeks—in some cases, months.
The IEA’s collective reserves alone are sufficient to cater for close to two months’ worth of Persian Gulf supply. On top of that, major countries maintain their own strategic stocks. China is believed to maintain over 100 days’ worth of consumption. Japan, with its deep concern for energy security, holds over 250 days’ worth. The European Union maintains 90 days’ worth of imports. India, which imports over 80 per cent of its crude oil requirements, has 74 days’ worth in strategic reserves.
These numbers matter. They mean that no major economy faces an immediate energy catastrophe. There is time—weeks, perhaps months—for diplomacy to work, for alternative arrangements to be made, for the conflict to evolve.
But reserves are not infinite, and they are not a solution. They are a buffer, designed to provide breathing room in a crisis. If the crisis extends beyond the buffer, the consequences become severe.
The LNG Blind Spot
While oil has captured the headlines, Ajay Singh points to a potentially more immediate concern: natural gas. “Actually, the position of natural gas reserves should perhaps be of greater immediate concern, but is receiving less attention,” he notes.
European gas reserves are at typically low winter-end levels. The continent is emerging from the heating season with depleted stocks. The task of refilling them for the next season—already impaired by reduced Russian supplies following the invasion of Ukraine—is now further limited by losses of Qatari and Emirati LNG supply, much of which would normally transit the Strait of Hormuz or be affected by the broader regional instability.
The impact is already visible in prices. Spot LNG prices have shot up above $15 per MMBtu (Metric Million British Thermal Unit) in Asia and Europe, an over 50 per cent increase in just two weeks. For countries like India, which have invested heavily in LNG import infrastructure and are counting on gas to play a larger role in their energy mix, this is a significant setback.
Iran’s Strategy: Weaponising the Strait
How has Iran, despite the overwhelming military superiority of the United States and its allies, succeeded in effectively closing the Strait of Hormuz? The answer lies in the nature of modern warfare and the geography of the chokepoint.
Ajay Singh invokes the wisdom of the Prussian military strategist Helmuth von Moltke the Elder: “No plan of war provides certainty beyond the first encounter with the enemy.” Uncertainty is inherent in the very nature of war, and the weaker power can take to unconventional means. Iran, using drones and the narrow geography of the strait, is doing exactly that.
The strait is only 33 kilometres wide at its narrowest point, with shipping lanes just a few kilometres across in each direction. A swarm of drones, a few well-placed mines, or the threat of missile attacks on tankers can make passage too risky for commercial operators, regardless of who controls the air or sea surface. Insurance premiums skyrocket. Crews refuse to sail. Owners keep their vessels at port.
Iran has effectively weaponised oil. By disrupting global supplies, it hopes to create economically damaging distress in the United States and its allies—distress that translates into political pressure to end the conflict on terms more favourable to Tehran.
The Conflict’s Trajectory
What is the likely course of the conflict now? Singh offers two scenarios.
The best-case scenario is that the two sides come to terms whereby Iran changes its policies vis-a-vis the US and Israel toward co-existence and economic cooperation. This would require a fundamental shift in Tehran’s posture—one that seems unlikely given the regime’s ideology and the domestic pressures it faces. But in war, the impossible can become necessary.
The worst-case scenario is that the war has no clear result, drags on beyond early April, adequate anti-drone defence cannot be assured, and a defiant Iran, even if much enfeebled or politically fragmented, continues to harass shipping, oil and gas production, and life across the region. “That would be a tragic prospect,” Singh observes, “in a vitally sensitive part of the world, serving neither the long-suffering people of Iran nor the world at large.”
The Kharg Island Anomaly
One significant aspect of the conflict so far is what has not been attacked. No major Iranian oil and gas production, refining or export facility has thus far been struck. Three depots and one refinery near Tehran have been hit, but the main oil export facility at Kharg Island remains untouched.
Singh believes this is deliberate. “It is a measure in the interest of stabilising oil price,” he suggests. “It is partly a signal to Iran to reciprocate by refraining from attacking other countries’ facilities—which it has so far rebuffed. It is partly also a measure to keep the Iranian people on side in the days after the war, as Iran’s ability to produce and export oil and gas will be the foundation on which its economy can be revived.”
This restraint, if it holds, offers a pathway to de-escalation. It suggests that even as the war rages, both sides recognise the catastrophic consequences of targeting the region’s energy infrastructure. It is a thin reed of hope, but it is there.
Resuming Shipping Through the Strait
The critical question for India and other energy-importing nations is whether shipping through the Strait of Hormuz can be resumed even if the war continues. Singh suggests that a new major crisis may force nations to get together to dispatch their merchant fleets escorted by their navies to the Gulf, even as diplomatic efforts continue.
This would be a significant escalation—effectively daring Iran to attack vessels under naval escort. It would risk a direct confrontation between Iranian forces and the navies of major powers. But it might also be the only way to restore the flow of energy supplies if the conflict becomes protracted.
The risk of a wider war is real. The international community must act quickly to prevent it. But action requires consensus, and consensus is elusive in a divided world.
India’s Stake
For India, the stakes could not be higher. With 74 days of strategic reserves, the country has a buffer, but not a solution. Every day the conflict continues, the pressure on prices, on supplies, and on the economy intensifies.
The success in securing passage for two oil tankers last week—the first non-Iranian vessels to transit the strait since the conflict began—offered a glimmer of hope. It demonstrated that diplomatic engagement with Tehran could yield results. But it also underscored the fragility of the situation. Each shipment requires negotiation. Each crossing carries risk. The flow is a trickle, not a stream.
India’s energy security strategy has long emphasised diversification—of sources, of routes, of fuel types. The current crisis underscores the wisdom of that approach. But diversification takes time, and the crisis is now.
Conclusion: Living with Uncertainty
Two weeks into the war, the situation remains fluid and dangerous. Iran’s government has remained viable despite the loss of its leader, has taken the war to several countries across the region, and has succeeded in choking off a fifth of the world’s flow of oil and gas. The major economies have reserves, but not indefinitely. The diplomatic channels are open, but progress is slow.
The best-case scenario—a negotiated settlement that restores stability and energy flows—remains possible. The worst-case scenario—a protracted war of attrition that keeps the strait closed and spreads chaos across the region—is also possible. The outcome depends on factors that no single country controls: the calculations of leaders in Tehran, Washington, and Jerusalem; the resilience of global energy markets; the effectiveness of diplomatic engagement.
For now, the world watches, waits, and hopes. The strategic reserves are drawn down, day by day. The clock is ticking.
Q&A: Unpacking the Strait of Hormuz Crisis
Q1: How severe is the disruption to global oil supplies?
A: According to the International Energy Agency, this is “the largest supply disruption in the history of the global oil market.” Before the war, a fifth of the world’s oil and gas demand passed through the Strait of Hormuz. Two weeks into the conflict, that flow has slowed to a trickle. The impact is compounded by extreme market volatility, with oil prices fluctuating wildly between $70 and $120 per barrel as markets react with fear to every development.
Q2: How long can major economies withstand the disruption?
A: Major economies have significant strategic reserves. The IEA’s collective reserves can cover close to two months of Persian Gulf supply. Individual countries maintain their own stocks: China over 100 days, Japan over 250 days, the EU 90 days of imports, and India 74 days. These reserves provide a buffer, but they are not infinite. The real concern is natural gas—European reserves are at low winter-end levels, and refilling them for next season is impaired by reduced Russian supplies and losses of Qatari and Emirati LNG.
Q3: How has Iran managed to effectively close the Strait despite US military superiority?
A: Iran has weaponised the geography of the strait and used unconventional tactics including drones. The strait is only 33 kilometres wide at its narrowest point, and a swarm of drones, mines, or missile threats can make passage too risky for commercial operators regardless of who controls the air or sea surface. As Prussian strategist von Moltke observed, “no plan of war provides certainty beyond the first encounter with the enemy”—uncertainty is inherent in war, and weaker powers can exploit it.
Q4: Why haven’t the US and Israel attacked Iran’s main oil export facility at Kharg Island?
A: Ajay Singh suggests this is deliberate—a measure to stabilise oil prices, a signal to Iran to refrain from attacking other countries’ facilities, and a recognition that Iran’s ability to produce and export oil and gas will be essential for reviving its economy after the war. This restraint offers a thin reed of hope for de-escalation, suggesting both sides recognise the catastrophic consequences of targeting energy infrastructure.
Q5: What are the best and worst-case scenarios for the conflict?
A: The best-case scenario is that the two sides come to terms whereby Iran changes its policies toward co-existence and economic cooperation with the US and Israel. The worst-case scenario is a protracted war with no clear result, dragging on beyond early April, with a defiant Iran continuing to harass shipping, oil and gas production, and life across the region. Resuming shipping through the strait may eventually require nations to dispatch merchant fleets escorted by their navies—a significant escalation risking direct confrontation.
