The Iranian state media has reported partial closure of the Strait of Hormuz, a strategically important oil choke point, citing “security precautions”, while Tehran's Revolutionary Guard conducts military drills in the area.
The closure comes at a time when Tehran and Washington have been engaged in "nuclear talks" in the Swiss city of Geneva. This is the first time that Iran has closed parts of the waterway since United States President Donald Trump threatened Tehran with military action in January.
This temporary closure of the Strait of Hormuz is aimed at ensuring shipping safety. The Revolutionary Guard's drill is also to ensure “Smart Control of the Strait of Hormuz,” and the exercise is designed to improve Iran's operational readiness and bolster its deterrence in case of a military conflict.
Reuters, meanwhile, reported Iranian Foreign Minister Abbas Araghchi as saying that Tehran and Washington have reached an understanding of the “guiding principles” during the talks.
What is the Strait of Hormuz, and why is it important?
The waterway is located in the Gulf, between Oman and Iran, and is recognised as one of the world's most important oil choke points. A choke point is a narrow, strategic maritime channel or strait through which a massive volume of the world's oil supply is transported daily.
As per reports, more than 13 million barrels of crude oil are transited through the Strait of Hormuz on a daily basis. This volume accounts to around 31% of the global seaborne crude oil flow.
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What does this closure mean for the energy markets?
Market participants have been monitoring the situation closely, and also keeping an eye on the Iran-US nuclear talks, with an increased military presence in the area.
There can be an impact on the oil prices, which were last seen trading lower. However, Jakob Larsen, the Chief Safety and Security Officer at Bimco, which represents global shipowners, thinks that the partial closure of Hormuz will only cause “minor nuisance and delays”, but there will be “no major disruptions.”
“The exercise establishes a live firing exercise area overlapping the inbound part of the Strait of Hormuz's Traffic Separation Scheme, and requests that shipping keep clear of the area for the duration of a few hours,” Larsen was quoted by CNBC as saying.
He added that given the level of tension in the area, it was expected that commercial shipping would comply with the Iranian request, “to keep clear of the exercise area.”
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