In January this year, the situation in the Persian Gulf escalated sharply: the presence of American warships, mutual accusations and threatening statements by Iranian, Israeli and American officials, as well as expert assessments, point to a high probability of a new war. As in the past, the Strait of Hormuz, through which almost 20% of the world’s oil trade passes, is being discussed more and more. Tensions are heating up every day, drawing the world’s attention to the Persian Gulf.   

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The importance of renewable and environmentally friendly energy sources for humanity seems obvious to everyone, but in reality, hydrocarbons still hold an unrivalled position in the global economic system. One of their transport routes is the Strait of Hormuz, a water corridor about 50 km wide, where every barrel of oil and every cubic meter of gas becomes a geopolitical struggle.  

 

Participants in major international projects linking East and West are striving at all costs to bypass both Russia and Iran. The geopolitical objectives and incentives behind this strategy are well known and constantly in the spotlight of analytical and academic researchers. However, both countries are striving in every way to preserve routes that are advantageous to them, create new communication links, and bypass international sanctions by all possible means. 

In this context, Iran’s strategy for bypassing long-standing sanctions and securing the country’s strategic exports and imports deserves attention. 

Crude oil exports are of paramount importance to Iran’s economy, with China being one of its main consumers.  Beijing, in turn, needs Iranian oil, but is sparing no effort to avoid sanctions. This problem is largely solved by private, small Chinese companies engaged in oil refining. In professional circles, they are referred to as teapots. These companies, located in China’s Shandong province, prefer Iranian oil to other supplies not subject to sanctions, as it is $8-12 cheaper.  

By the end of 2025, China had imported approximately 17% more oil than in the same period the previous year. Oil imports to China rose 4.4% in 2025, which, according to experts, is explained not only by growing demand for energy but also by the presence of new storage facilities.

In addition to pipelines, large tankers, whose size is measured in deadweight tonnage, have become one of the most common means of transportation. This measurement unit does not include the weight of the vessel. Thus, the capacity of Panamax tankers varies from 60,000 to 80,000 deadweight tonnage and Aframax tankers from 80,000 to 120,000 deadweight tonnage. There are also larger, literally enormous tankers, capable of transporting 200,000-500,000 deadweight tonnage of crude oil (VLCC Very Large Crude Carrier and ULCC Ultra Large Crude Carrier). The length of tankers can reach up to 400 meters. These maritime giants transport oil day and night, becoming an important maritime link in a major geopolitical struggle. 

Oil sales in Iran are carried out by the National Iranian Oil Company, which owns the largest tanker company in the Middle East, the National Iranian Tanker Company (NITC).  

Based on data as of the end of 2025, Iran increased its exports of crude oil and condensate by approximately 6% compared to the previous year. Compared to 2023, oil exports grew by approximately 25%, indicating that Iran has established a fairly stable system for bypassing sanctions. According to data, as of early 2026, Iran produces about 3.4 million barrels of oil per day.

Exports fell by almost half and amounted to about 1.6 million barrels per day by the end of 2025, with Chinese oil refineries consuming the lion’s share. They operate unofficially, in the so-called “gray” zone, and can bypass sanctions.   

Iran uses legally registered tankers to export oil, the number of which, according to various sources, is around 38. However, there is also an unofficial, shadow fleet, which, according to incomplete data, consists of 60-80 VLCC class tankers. 

The United States imposed sanctions on 50 ships, entities, and individuals transporting Iranian oil and liquefied gas in October 2025. By the end of the year, another 29 Iranian vessels and their management firms were added to the US sanctions blacklist.  

It should also be noted that Iranian tankers are quite old, that is why they move much more slowly to conserve resources and avoid breakdowns. Iran is attempting to modernize its fleet; however, this does not result in a significant increase in the number of vessels, as old ones are being decommissioned. 

To bypass sanctions, Iranian ships often switch off their AIS systems after passing the Strait of Hormuz and change flags in an attempt to reach South Asia. Here, the oil is being pumped into smaller tankers, which is known as STS (ship to ship). Moreover, Iranian tankers change their flags and documents, indicating Indonesia or Malaysia as the oil source.   

Despite promising environmental discussions, global oil consumption is not only not decreasing, but is actually increasing. Specialized centers engaged in the study of oil and other energy sources predict that by 2026, oil production will increase by 800,000-900,000 barrels per day. Global oil demand is forecast at 104-106 million barrels per day. This does not necessarily mean that so much oil is consumed. As noted, many countries built and are building large storage facilities for their reserves of black gold.

Iran’s share of the global oil industry is small, 3.4 million barrels per day. For comparison, the US produces 13 million barrels per day, while Saudi Arabia produces 9.5 million barrels of oil. Obviously, if Iran stops producing oil for any reason, the global oil industry will not suffer significant damage as a result. However, another geopolitical factor, the Strait of Hormuz, can and does regularly affect international oil prices  

The Strait of Hormuz

The Strait of Hormuz connects the Persian Gulf with the Gulf of Oman and then with the Arabian Sea. The strait is about 54 km wide and over 90 km long. The Islamic  Republic of Iran lies to the north and northeast, while the strait washes the coast of the Musandam exclave, a province of Oman to the southwest. 

The navigable part of the Strait of Hormuz is approximately 4  km wide, and considering that about 20% of the world’s oil exports pass through it, it is easy to imagine the density of shipping traffic and its geopolitical significance. 

The strait is of huge economic importance to the oil-rich countries of the Persian Gulf, Kuwait, Saudi Arabia, Qatar, the United Arab Emirates,  Bahrain and Iran. The Strait of Hormuz is also of political importance. Since the second half of the 20th century, the Strait of Hormuz has been a key center of geopolitical tensions during almost all wars in the Middle East.  

During the 8-year Iran-Iraq War of the 1980s, the Strait of Hormuz became a theater of war, but the targets of the attacks were not military ships of the opposing sides, but the tankers. During the war, more than 200 tankers were attacked, and about 50 of them were sunk or put out of action.   

How insurance “shapes” oil prices

Obviously, such an expansive structure as a tanker must inevitably be insured. After military ships, tankers are the most expensive vessels, with prices ranging between $80 million and $130 million. Cargo is also expensive. A ULCC tanker can carry oil worth $200-$300 million. It is worth noting that transportation costs are low, ranging from 2 to 4 cents per barrel. Insurance services drive the main costs. 

Pricing insurance for oil tankers is a complex and multi-layered process involving technical calculations, assessment of geopolitical risks, and other factors. Insurance companies, especially London’s Lloyd’s syndicates, set base rates for tankers based on the type of vessel, its age, technical condition, and cargo volume. However, when it comes to strategic and risky areas such as the Strait of Hormuz, a War Risk Premium is applied, which is calculated based on the territorial zones defined by the Joint War Committee (JWC)  of the London market. As soon as the vessel enters such a “problem” zone, standard insurance is applied, calculated as a certain percentage of the vessel’s total value. 

Insurance prices for passing through straits are rising rapidly. If under normal circumstances the insurance rate is, say, 0.01% of the vessel’s value, then in the event of increased tensions or threats from Iran to close the strait, the rate could immediately reach 0.5% or even 1%. This means that for a modern tanker worth $100 million, a weekly passage can cost $500,000 or more. This amount includes not only the risk of actual damage to the vessel, but also the possibility of Constructive Total Loss (CTL), when the cost of repairing the vessel exceeds its insurance value. 

In many cases, the insurance market reacts more quickly to fears and negative expectations than to actual losses. This is called risk premium, which is included in the price. According to Discovery Alert’s analytical data for 2026, the geopolitical risk factor for global oil prices could be $3-4 per barrel, while the actual increase in insurance costs allocated per barrel (amortized cost) is just $0.25-0.80. In other words, concerns about supply disruption have a greater impact on the final price of oil than the actual insurance premium paid to the insurance company.  

When Iran threatens to close the Strait of Hormuz, the oil price can rise by 10-20% on the international market in a matter of days. Although the cost of insuring a barrel of oil is “diluted”  by the huge volumes involved (a single tanker carries around 2 million barrels), the final price increase for the consumer is determined by the overall rise in the price of Brent or WTI crude oil on the world markets.   

Any wave of tension around the Strait of Hormuz can lead to fuel price increases in a relatively short time. Processing companies and gas stations raise prices, but lower them very slowly,  even when insurance risks disappear. 

In addition to oil, billions of cubic meters of liquefied natural gas, another hydrocarbon resource vital for consumers, are transported through the Strait of Hormuz. The United Arab Emirates and Qatar together account for about 20% of global liquefied gas production, and this valuable fuel is also transported through the Strait of Hormuz on special vessels. 

Following the Iran-Iraq War, in the context of decades of conflict with the West, the United States and Israel, Iran has repeatedly threatened to close the Strait of Hormuz or at least to impede the movement of enemy tankers. Iran could certainly carry out this threat using its military capabilities: warships, submarines, various sea mines, and other means. Professional assessments regarding the key question, whether Iran will take this step, vary considerably.  

According to most think tanks, if the Strait of Hormuz is closed, the Persian Gulf countries, including Iran itself, will be the first to suffer, losing tens of billions of dollars in revenue. As already noted, the main consumers of Iranian oil are located far from Europe and the United States. Among the countries that will suffer from this will also be Iran’s allies, China and India.   

However, there is also a view that if the US and Israeli strikes on Iran become a real threat to the country’s statehood or the overthrow of the government, Tehran will take any measures necessary, including closing the Strait of Hormuz.

Alternatives to the Strait of Hormuz

The geopolitical vulnerability of the Strait of Hormuz in recent decades has forced the region’s largest oil-producing countries, Saudi Arabia, the United Arab Emirates, and even Iran, to seek alternatives. 

Saudi Arabia built the East-West Pipeline (Petroline), which stretches from the city of Abqaiq on the Persian Gulf to the port of Yanbu on the Red Sea.  

These are two parallel pipelines, one of which transports natural gas, and the other transports “heavy” components of natural gas, such as ethanol, propane, and butane (Natural Gas Liquids, NGL), which are widely used in the chemical industry. As of 2026, the pipeline’s capacity is approximately 7 million barrels per day. It should be noted that in addition to the Strait of Hormuz, the Petroline also bypasses another risky area, the Bab el-Mandeb Strait, which leads to the Red Sea. 

The United Arab Emirates, in turn, constructed the 360 km long ADCOP pipeline, which stretches from Abu Dhabi to the port of Fujairah on the coast of the Gulf of Oman. This pipeline has a capacity of 1.5 million barrels per day. This allows the UAE to transport about half of its oil exports,  bypassing the Strait of Hormuz and reducing insurance costs.  

Iran is also taking steps to bypass the strait. The Goreh-Jask pipeline, approximately 1000km long, can deliver 1 million barrels of oil per day to the Jask terminal on the coast of the Gulf of Oman. As of early 2026, this project is in its final stages. Although it provides Iran with strategic access to the open ocean, it cannot completely replace the Strait of Hormuz. 

Despite huge investments, pipelines cannot completely replace maritime shipping. Every day, about 20-21 million barrels of oil and liquified natural gas (LNG) pass through the Strait of Hormuz, while the total capacity of all existing alternative pipelines in the region does not exceed 4-5 million barrels per day.