Iran’s Economic Balancing Act: Hormuz Strait Threat

Tehran’s Potential Strait Blockade Could Backfire

Tensions between Iran, the US, and its allies simmer, with the global economy watching closely. Iran possesses a powerful economic weapon: the ability to block the Strait of Hormuz. However, such a move could severely damage Tehran’s own financial interests, creating a complex geopolitical dilemma.

The Oil Factor: Iran’s Economic Dependence

The Iranian economy relies heavily on oil exports, which comprise over 17% of total exports. Natural gas contributes an additional 12%. In 2023, Iran was the fourth-largest crude oil producer within OPEC. Despite international sanctions, Tehran has continued exporting oil, particularly to China.

“This retaliatory strike by Tehran was ‘loud enough for headlines, quiet enough not to shake the oil market’s foundations.’”

—Stephen Innes, SPI Asset Management

China imported nearly 90% of Iranian oil in 2023. According to the U.S. Energy Information Administration, China’s oil imports from Iran have increased in recent years, reaching an average of 1.2 million barrels per day in the first quarter of 2024 (EIA).

The China Connection

A blockade would harm Iran’s relationship with China, its primary trading partner. China profits from discounted Iranian oil. The London-based TV station, Iran International, estimates that Iran sells its oil at a discount due to the risks associated with US sanctions. This has resulted in intermediaries mixing the oil with shipments from other origins.

Regional Ramifications

A blockade would also negatively impact Iran’s neighbors, including Kuwait, Iraq, and the United Arab Emirates, all of whom rely on the strait for their oil exports. A Gulf region analyst, Justin Alexander, commented that closing the strait would weaken existing alliances Iran has with other regional states.

Economic Strain Within Iran

Iran’s domestic economic situation could further deteriorate. Sanctions and a low exchange rate are contributing to inflation, which has increased to over 38.7% in May 2025 compared to May 2024. The economic situation in Iran is already dire.

Closing the Strait of Hormuz could prompt a military response from the US and European nations, potentially leading to Iran losing control within a few days. The interplay of sanctions, trade, and economic stability will shape the future of the region.