Global Energy Planners Have Sidestepped Modeling a Full Strait of Hormuz Closure
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International energy planners have historically avoided modeling a complete closure of the Strait of Hormuz, a critical chokepoint for global oil and gas. While the International Energy Agency (IEA) has included related risks in its emergency planning, a recent task force sidestepped the scenario, citing its unprecedented nature and the need for a global response beyond the IEA's scope. Despite current market stability, the scenario remains a significant, unmodeled risk for global energy security.
Facts First
- The Strait of Hormuz is a key artery for about one-fifth of the world's oil and liquefied natural gas.
- A 2022 IEA task force did not model a full closure, with a member stating it was unprecedented and would require a global response.
- The IEA has included related risks in its emergency planning, including in 2019, according to agency officials.
- The U.S. is now the world's largest oil and gas producer, and its economy's dependence on oil has decreased.
- Oil prices have recently reached $126 a barrel, though markets have remained stable during the current crisis.
What Happened
International energy planners have repeatedly avoided modeling a full shutdown of the Strait of Hormuz. In 2007, experts at the nonprofit Securing America's Energy Future (SAFE) considered but did not model such a scenario. In 2022, a task force led by representatives of countries in the International Energy Agency (IEA) assessed strategic oil reserves but also excluded a full closure from its planning. Landon Derentz, a member of that task force, stated the scenario was sidestepped because it had never happened and would require a global response beyond the IEA's coordination capabilities. An IEA spokesperson and a former top official stated the agency has included risks associated with a closed strait in its emergency planning, including in 2019.
Why this Matters to You
A prolonged closure of this vital shipping lane could severely disrupt global energy supplies, which may lead to higher prices for gasoline, heating, and electricity. However, your exposure to such a shock may be less than in the past because the United States is now the world's largest producer of oil and natural gas, and U.S. economic dependence on oil has decreased due to factors like improved vehicle efficiency. The current stability of oil prices and the stock market suggests existing mechanisms may be absorbing recent tensions, but a full closure remains an extreme, unmodeled risk.
What's Next
The scenario of a full closure may continue to fall outside conventional policy planning, as described by the late economist Martin Weitzman's 'dismal theorem' about extreme, low-probability events. Future emergency planning may need to better integrate military assessments of conflict risks around the strait, which have often been conducted separately from energy and economic analysis. The global response to any future closure would likely require coordination beyond existing frameworks like the IEA.