The blockade of the Strait of Hormuz has begun and we now have a clearer picture of how it’s going to work.

It doesn’t just cover the strait itself. It runs along the entire Iranian coastline, out through the Gulf of Oman, which the strait feeds into, and then further again into the Arabian Sea.

At least two ships have already been turned back. One of them, unsurprisingly, was headed for China.

Now here’s the key point.

If - and it is a very big if - the United States can successfully keep oil tankers away from Iran, the impact could be fast and severe.

We’re talking 10 to 20 days.

Iran can apparently store only around 13 days’ worth of oil production. Once those tanks are full, they’re forced to start shutting oil wells. And that’s something they really don’t want to do.

Shutting down an oil well can permanently damage its production capacity. There’s no guarantee you ever get it back to where it was. Restarting wells is expensive, risky and slow.

Beyond that, there’s the wider economic hit.

Around 90 percent of Iran’s oil exports go through Hormuz - and they’ve continued exporting despite the war. In fact, they’ve been earning more, not less. Iran has no real alternative route.

So if exports stop, so does the cash.

No oil money means no imports, the currency falls, inflation explodes and you start seeing cascading economic problems very quickly.

The oil production damage is pretty much a slam dunk.

The bigger debate is how fast the broader economy feels it.

Because there’s a counter‑argument here: Iran may already have as much as 160 million barrels of oil floating at sea. If that’s right, China keeps getting its oil, Iran keeps getting paid, and this can drag on through to mid-July.

And that’s the worst-case scenario for the rest of us.

Because then this isn’t a short, sharp shock - it’s a long siege. And that hurts globally. Even the small amount of Iranian oil that’s been leaking onto the market in the past six weeks has been helping to keep prices down.

The Economist is calling this a big gamble and that’s exactly what it is.

This has the potential to cripple Iran quickly - or to strangle the world economy very slowly.

LISTEN ABOVE

The blockade of the Strait of Hormuz has begun and we now have a clearer picture of how it’s going to work.
It doesn’t just cover the strait itself. It runs along the entire Iranian coastline, out through the Gulf of Oman, which the strait feeds into, and then further again into the Arabian Sea.
At least two ships have already been turned back. One of them, unsurprisingly, was headed for China.
Now here’s the key point.
If - and it is a very big if - the United States can successfully keep oil tankers away from Iran, the impact could be fast and severe.
We’re talking 10 to 20 days.
Iran can apparently store only around 13 days’ worth of oil production. Once those tanks are full, they’re forced to start shutting oil wells. And that’s something they really don’t want to do.
Shutting down an oil well can permanently damage its production capacity. There’s no guarantee you ever get it back to where it was. Restarting wells is expensive, risky and slow.
Beyond that, there’s the wider economic hit.
Around 90 percent of Iran’s oil exports go through Hormuz - and they’ve continued exporting despite the war. In fact, they’ve been earning more, not less. Iran has no real alternative route.
So if exports stop, so does the cash.
No oil money means no imports, the currency falls, inflation explodes and you start seeing cascading economic problems very quickly.
The oil production damage is pretty much a slam dunk.
The bigger debate is how fast the broader economy feels it.
Because there’s a counter‑argument here: Iran may already have as much as 160 million barrels of oil floating at sea. If that’s right, China keeps getting its oil, Iran keeps getting paid, and this can drag on through to mid-July.
And that’s the worst-case scenario for the rest of us.
Because then this isn’t a short, sharp shock - it’s a long siege. And that hurts globally. Even the small amount of Iranian oil that’s been leaking onto the market in the past six weeks has been helping to keep prices down.
The Economist is calling this a big gamble and that’s exactly what it is.
This has the potential to cripple Iran quickly - or to strangle the world economy very slowly.
LISTEN ABOVE

With a straight down the middle approach, Heather du Plessis-Allan Drive on Newstalk ZB delivers the very latest news and views to New Zealanders as they wrap up their day.

Heather du Plessis-Allan Drive

Perspective with Heather du Plessis-Allan: What's the worst-case scenario for the Strait of Hormuz blockade?

https://api.omny.fm/orgs/7784f840-c291-422a-924b-ad9000bbad71/clips/cf312a3c-a41e-461e-ae82-b42c0076df4a/transcript