Iran-Iraq War: Oil Industry, Strait of Hormuz & Threat to Global Economy
The conflict in the Middle East has increasingly focused on Iran’s energy infrastructure, with Kharg Island – a critical hub for Iranian oil exports – becoming a central point of contention. The situation is further complicated by threats to the Strait of Hormuz and escalating tensions involving potential disruptions to global shipping lanes, including the Suez Canal.
On , U.S. Forces conducted large-scale precision strikes on military targets on Kharg Island, a compact but strategically vital island located approximately 20 miles off Iran’s northern Gulf coast. President Trump stated that the U.S. Military “totally obliterated” every military target on the island, while deliberately avoiding damage to oil export infrastructure. But, he warned that this restraint could be reconsidered if Iran interferes with the “Free and Safe Passage of Ships” through the Strait of Hormuz.
Kharg Island historically handles between 85–95% of Iran’s crude oil exports, making it a crucial source of revenue for the Islamic Republic, particularly through sales to China. Disrupting the island’s loading facilities would severely cripple Iran’s ability to export oil. The strikes represent a demonstration of U.S. Capability to impact Iran’s energy sector, following Iranian threats to close the Strait of Hormuz to most traffic.
Iran has been actively threatening global energy markets by restricting passage through the Strait of Hormuz, a waterway through which approximately 20% of the world’s oil supplies transit. While Tehran has allowed some vessels – including Indian and Turkish ships – to pass through the strait, it has reportedly blocked access for U.S. And allied warships. Oil exports through the Strait have already decreased to just 10% of pre-conflict levels, contributing to a 40% increase in global oil market prices since the start of the conflict.
President Trump is considering providing military escorts for tankers transiting the Strait of Hormuz, but such operations would be complex and dangerous. The narrow waterway is within range of Iranian rockets, mines, unmanned aerial vehicles, and fast attack craft. Trump has called on countries that purchase oil from the Gulf region to participate in these escort efforts, but as of , no firm commitments have been received.
The Iranian military has issued a stark warning: any attack on Iranian oil facilities will be met with retaliatory strikes targeting all oil and energy sector facilities in the Gulf region with ties to the United States. Following the U.S. Strike on Kharg Island, Tehran declared that all “hideouts” of the U.S. In the United Arab Emirates (UAE) would be considered legitimate targets. This was accompanied by an attack on a fuel storage facility in Fujairah, UAE, a key location for oil exports with a pipeline bypassing the Strait of Hormuz.
Beyond Kharg Island, oil industries in other Gulf states have also been targeted. Bahrain’s armed forces reported intercepting over 120 rockets and 200 drones launched by Iran since the beginning of the conflict. Qatar, Oman, Kuwait, and Saudi Arabia have also reported Iranian attacks on tankers, fuel storage facilities, refineries, and liquefied natural gas plants.
Iran’s actions are aimed at pressuring Gulf states to close U.S. Military bases on their territory and compelling President Trump to conclude the conflict. According to Danny Citrinowicz, a former Iran expert with Israeli military intelligence, Iran views pressure on global energy markets as a means to force Washington to de-escalate.
The conflict has already reduced oil exports from the Gulf region from a daily average of 30 million barrels to 20 million barrels, while global demand remains at 100 million barrels per day. This has led to a buildup of oil inventories and a corresponding reduction in oil production. Even if the conflict were to end soon, it would take weeks to restore production to previous levels.
The potential involvement of the Houthi rebels from Yemen adds another layer of complexity to the situation. The Houthis have previously disrupted maritime traffic in the Bab el-Mandeb strait, impacting shipments through the Suez Canal. While a ceasefire has been in place since , renewed Houthi attacks in the Red Sea could divert U.S. And Israeli military assets from Iran, potentially easing pressure on Tehran.
However, the extent of Iranian influence over the Houthis should not be overstated. While the Houthis recognize Iran as an ally, they do not acknowledge the authority of Iran’s Supreme Leader, Ali Khamenei. The death of Khamenei at the start of the conflict does not pose a significant problem for the Houthis. The Houthis seek recognition as a legitimate state actor and are wary of appearing as a mere proxy of Iran. Nevertheless, they may be willing to engage in limited involvement in the conflict to demonstrate their reliability to Iran and other potential supporters.