Iran Losing Leverage in the Strait of Hormuz

US Military and Gulf Counties Keep Oil Flowing

The U.S. sanctions and naval blockade are placing severe economic pressure on Iran, restricting oil revenues, foreign currency, imports, and access to global finance. However, global energy markets have adapted to disruptions in the Strait of Hormuz, limiting Tehran’s leverage. While U.S. and regional officials hope economic hardship will trigger unrest or force concessions, Iran’s leadership and Revolutionary Guards may remain resilient, making a negotiated compromise—possibly over shipping arrangements in the strait—the most realistic path forward.

Oil flows through the Strait of Hormuz have recovered to nearly 80% of prewar levels, supported by US Navy escorts, covert tanker movements, pipeline diversions, and increased production elsewhere. However, this recovery is fragile as Iran begins pushing back and global oil inventories continue to decline.

• Hormuz oil flows reached 1 million barrels per day, compared with 17.1 million before the war.
• Total Middle Eastern crude flows have recovered to 98% of prewar levels.
• Global inventories have fallen by roughly 2 billion barrels, despite measures to maintain supply.
• Lower demand and increased non-Gulf production have helped prevent prices from reaching 2008 record highs.
• The situation is unsustainable: if inventories fall too far, oil prices may surge sharply to reduce demand.

Iran’s response

Iran has begun attempting to disrupt the measures that have allowed traffic through the strait to recover. Its forces have increased inspections, delayed selected vessels, and threatened ships linked to countries supporting the escort system. Even limited interference could have an outsized impact because the current flow depends on a relatively small number of exposed routes and a narrow group of willing carriers.

The United States and its allies face a difficult balance. More escorts could reassure markets and deter attacks, but they could also turn commercial shipping into a direct military confrontation. Insurance costs have already risen, and some operators are choosing longer routes around the Cape of Good Hope despite the additional fuel and time required.

Pressure on consumers

The effects are beginning to spread beyond crude markets. Refiners in Asia and Europe are paying higher premiums for secure cargoes, while shortages of certain Middle Eastern grades are forcing them to adjust their operations. Diesel and jet-fuel markets are particularly vulnerable because inventories were already low before the conflict.

Governments have responded with emergency stockpile releases, fuel subsidies, and restrictions on exports. These measures can soften the initial shock, but they cannot replace lost supply indefinitely. Strategic reserves are finite, and repeated releases may leave countries less prepared for a later disruption.

What happens next

The outlook depends on three factors: whether Iran escalates its campaign, how long naval escorts can remain in place, and whether producers outside the Gulf can sustain higher output. A temporary reduction in tensions could allow inventories to stabilize and shipping costs to fall. A renewed attack on tankers, however, could quickly erase the recent recovery.

For now, the oil market is functioning—but only under extraordinary conditions. The restoration of flows has bought governments time, not solved the underlying crisis. As long as the Strait of Hormuz remains contested, every barrel reaching consumers will carry a growing premium for risk.

Reducing Iran’s Leverage Long-term

The United States should use the Strait of Hormuz crisis as an opportunity to permanently reduce Iran’s influence over global energy markets, rather than simply seeking to restore the previous status quo. As countries diversify energy supplies, expand alternative infrastructure, use strategic reserves, and develop non-OPEC production, prolonged disruption would gradually weaken the strait’s strategic importance and Iran’s coercive leverage.

• Hormuz’s closure is economically painful, but its strategic impact declines as countries adapt.
• Unlike nuclear capabilities, which are difficult to reverse once established, energy markets can diversify over time.
• New oil production, bypass pipelines, strategic reserves, and reduced demand can lessen dependence on Hormuz.
• The United States should support allied energy diversification, expand domestic oil, gas, nuclear, and emerging-energy production, and use the crisis to pressure Iran over its nuclear ambitions.
• The long-term goal should be an energy system in which closing the Strait of Hormuz matters far less.

This strategy would require patience, coordination, and a willingness to accept short-term costs in exchange for greater long-term security. Replacing lost supplies cannot happen overnight, and efforts to diversify energy sources may initially increase prices or require substantial investment in infrastructure. Nevertheless, temporary disruption is preferable to permanent dependence on a single vulnerable chokepoint.

The United States should therefore work closely with European and Asian allies to accelerate construction of alternative pipelines, expand liquefied natural gas capacity, improve port and storage facilities, and coordinate the use of strategic petroleum reserves. Governments should also encourage investment in domestic production and in technologies that reduce oil consumption, including nuclear power, renewable energy, electric transportation, and energy efficiency.

At the same time, Washington should make clear that attacks on commercial shipping or attempts to permanently close the strait will carry consequences. A credible military presence remains necessary to protect navigation and deter escalation. But military measures should support, rather than replace, a broader economic strategy. The objective should not be an endless cycle in which each crisis is resolved only to leave the underlying vulnerability intact.

Iran’s leaders have long understood that control over regional geography gives them leverage beyond their economic and military strength. If that leverage is steadily reduced, Tehran will have fewer opportunities to threaten global markets, intimidate neighbouring states, or force concessions from outside powers. A diversified energy system would also strengthen the bargaining position of Iran’s neighbours, many of whom have been compelled to accommodate Iranian pressure because of their dependence on the strait.

The transition will not eliminate geopolitical risk. Oil prices can still rise, regional conflicts can still disrupt production, and hostile governments can still threaten infrastructure. Yet resilience does not require eliminating every danger. It requires ensuring that no single threat can dictate the choices of the entire global economy.

The Strait of Hormuz should therefore be treated not merely as a crisis to be reopened, but as a warning about the costs of concentrated dependence. By investing in alternative supplies, protecting transportation routes, reducing consumption, and maintaining credible deterrence, the United States and its allies can transform a strategic vulnerability into an opportunity. The ultimate measure of success would be a future in which the strait remains important—but no longer indispensable.