The 21-mile strait that moves the world’s energy markets

Global energy markets appear vast and complex. Oil tankers cross oceans, pipelines stretch across continents, and trading desks and algorithms move billions of dollars through global exchanges every day. From a distance, the system resembles an enormous machine, powerful and seemingly indestructible.

Yet even the largest machines can stop when a small piece of grit finds its way into the gears.

One such piece of grit lies in the Persian Gulf. At its narrowest point, the Strait of Hormuz is only about 21 miles wide, roughly the distance from central London to Heathrow. Yet every day, about one-fifth of the world’s oil supply passes through it, a narrow passage carrying a significant share of the fuel that powers the global economy.

The strait highlights something fundamental about the structure of the modern energy system. Oil and gas must be extracted, transported across oceans, pushed through pipelines and shipped through a small number of geographic chokepoints before they reach consumers. When those routes become unstable, the entire system becomes vulnerable.

Renewable electricity operates according to a very different logic. The energy captured by a solar panel has travelled roughly ninety three million miles from the sun to Earth without encountering a shipping lane, pipeline or maritime checkpoint. Yet the final stages of oil’s journey to market can be halted by a passage only twenty-one miles wide. The contrast illustrates how differently these energy systems are organised.

When tensions rise around the Strait of Hormuz, the consequences ripple quickly through global markets. Recent tensions have pushed oil prices above $100 per barrel for the first time since the immediate aftermath of Russia’s invasion of Ukraine in 2022. Prices have swung sharply as traders attempt to gauge how long the disruption might last.

The volatility reflects the mechanics of global oil trade. Security concerns following attacks on vessels in the region have made tanker operators more cautious about navigating through contested waters. Insurance markets amplify that risk. Shipping companies depend on insurers willing to underwrite voyages through high risk regions, and when insurers withdraw coverage or raise premiums sharply, ships that could technically sail often remain in port. Financial risk can therefore become as significant as physical danger in determining whether oil moves at all.

The result is a bottleneck. Vessels wait on either side of the strait, tankers hesitate to enter the Gulf to load cargo, and ships already inside delay their departure. Oil and gas that would normally move quickly into global markets remain temporarily stranded.

The geography of global energy trade magnifies these disruptions. More than eighty percent of the oil and liquefied natural gas exported from the Persian Gulf normally flows to Asia. Economies such as China, Japan, South Korea and India rely heavily on shipments that pass through the Strait of Hormuz. When tankers slow or stop, uncertainty spreads quickly through those markets, and energy prices respond accordingly.

Yet the events unfolding around the Strait of Hormuz reveal more than the fragility of a single shipping lane. They also highlight how differently countries interpret the same energy shock.

For major fossil fuel producers, the instinctive response is straightforward. If global supply routes are vulnerable, the solution is to increase domestic production and reduce reliance on imports.

The relationship between production and price, however, is more complicated than it first appears. Oil is traded in a global market, and its price is largely determined internationally. When geopolitical tensions threaten supply or key transit routes such as the Strait of Hormuz, prices rise everywhere.

The United States illustrates this dynamic clearly. It now produces more oil than it consumes, yet fuel prices still move with global markets. American drivers feel it at the pump just as Europeans do. Domestic production does not deliver price independence.

For countries that depend heavily on imported fuels, the lesson points in another direction. An energy system built around globally traded oil and gas exposes national economies to geopolitical risks far beyond their borders. Shipping lanes, pipelines and maritime chokepoints become critical points of vulnerability.

If global oil prices are largely determined by international markets, then producing more oil at home does not eliminate exposure to price shocks. It may improve supply security, but it does little to shield consumers from price shocks created elsewhere in the system. As long as economies rely on globally traded fuels, they remain tied to disruptions in distant shipping lanes and geopolitical flashpoints.

Domestic renewable energy presents a different model. Wind and solar power are generated where they are used and do not require tankers, pipelines or naval patrols to deliver energy to consumers. When combined with electrification and storage, they reduce the share of national energy supply that depends on volatile global fuel markets.

Structural changes to energy systems take years, sometimes decades, to unfold. Power plants, vehicle fleets and energy infrastructure cannot be replaced overnight. Governments, therefore, find themselves managing immediate shocks while longer-term solutions slowly take shape. South Korea has announced plans to cap prices at the pump for the first time in almost thirty years, while India has even temporarily suspended cremations using natural gas in order to conserve fuel supplies.

The deeper issue lies in the design of the energy system itself. An economy built around traded fuels concentrates risk in shipping lanes, pipelines and a handful of geographic chokepoints.

A more electrified energy system distributes that risk differently. Renewable technologies generate power where it is consumed, and electricity flows through networks rather than across oceans. As countries electrify transport, heating and industry, they gradually reduce exposure to the geopolitical risks embedded in global fuel supply chains.

Countries that can replace imported fuels with domestically generated electricity can reduce their exposure to volatility in global energy markets. Some of the most striking policy experiments are emerging in unexpected places. In early 2024, Ethiopia banned the import of petrol and diesel cars, meaning that newly imported passenger vehicles must be electric.

The policy was driven in part by the country’s dependence on imported fuel and the pressure those imports place on scarce foreign exchange. The transition is still in its early stages, but the economics are beginning to shift as Ethiopia expands charging infrastructure and draws on abundant hydropower.

Ultimately, the Strait of Hormuz raises a broader question about the architecture of the global energy system. An economy built around traded fuels will always depend on narrow chokepoints and fragile supply routes. A more electrified system powered by domestic renewables distributes energy production more widely and reduces those vulnerabilities.

The real lesson of the Strait of Hormuz is that energy security is not only about how much energy a country produces, but about how the entire system through which that energy moves is designed.

The transition will take time. Fossil fuels will remain central to the global economy for decades. Yet each geopolitical shock reinforces the same underlying question. How comfortable are we with an energy system in which a 21-mile stretch of water can move markets across the entire planet?

For many countries, the answer is becoming clearer. Energy security in the twenty-first century may depend less on controlling shipping lanes and more on generating renewable power at home. If that proves true, the path toward a cleaner energy system may also be the path toward a more stable one.

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