One Strait, Global Chaos

 

The Islamic Revolutionary Guard Corps (IRGC) intensified tensions around the Strait of Hormuz in early March, creating immediate ripple effects across global energy markets. As a result, oil prices surged sharply at times rising three to four times their previous levels in volatile trading conditions. This instability did not remain confined to crude oil alone; it cascaded into broader inflation, driving up the cost of essential goods worldwide. According to global reports, the price of a $100 barrel of crude oil has been further inflated by unprecedented insurance and freight costs, reflecting the heightened geopolitical risk in the region.

Strait of Hormuz

The Strait of Hormuz, a narrow maritime chokepoint, accounts for nearly a quarter of global oil consumption flows. Any disruption in this corridor has the potential to trigger a dramatic spike in fuel prices with even a single escalation in the Gulf region. Since the onset of tensions involving Iran, the price of Brent crude has risen by approximately 15%, reaching around $84 per barrel the highest level since mid-2024. Additionally, nearly one-fifth of the world’s liquefied natural gas (LNG) supply passes through this route, with over 80% of LNG shipments in 2024 directed toward Asian markets.

The consequences are already visible across global supply chains. Major shipping companies have suspended services to parts of the Middle East, leaving containers stranded in congested ports and disrupting trade flows. An estimated 20,000 seafarers have been directly affected across key regions, including Sri Lanka, India, Australia, and China. Another critical but often overlooked issue is fertilizer availability. Many South Asian economies rely heavily on fertilizer imports from the Middle East, and since certain fertilizers are byproducts of crude oil production, disruptions in oil supply directly impact agricultural inputs. This raises serious concerns about future crop yields across South Asia home to nearly two billion people and beyond.

Among major economies, China appears relatively insulated in the short term. As the largest buyer of Iranian oil, China has strategically prioritized energy security through diversified supply sources and significant investments in renewable energy. The country imported approximately 1.4 million barrels per day from Iran last year, accounting for about 13% of its seaborne crude imports. Many of these shipments are already in transit, potentially covering several months of demand. In addition, China maintains substantial strategic petroleum reserves, although the exact volumes remain undisclosed.

The global fuel crisis triggered by the Gulf tensions has compelled many countries to adopt urgent and coordinated strategies to stabilize supply and manage public response. Governments have released fuel from emergency reserves, as seen in Australia, to alleviate shortages. Some nations have temporarily lowered fuel quality standards to increase supply in the market. Rationing measures have been implemented in countries like Bangladesh and Nepal to prevent hoarding and ensure equitable distribution. At the same time, authorities have urged citizens to avoid panic buying and unnecessary stockpiling. On a global level, institutions such as the International Energy Agency have coordinated the release of hundreds of millions of barrels of oil from emergency reserves. While this intervention may not fully offset global consumption demands, it serves as a critical buffer to stabilize markets. Overall, these responses represent a mixture of short-term crisis management and demand-control strategies aimed at navigating an increasingly volatile energy landscape.

Oil refineries in Gulf

Sri Lanka, facing severe economic and fuel constraints, adopted a distinct and adaptive approach to managing the crisis. The government introduced a QR code-based fuel distribution system to regulate access and prevent misuse, ensuring fair allocation among citizens. Fuel supplies were prioritized for essential sectors such as healthcare, public transportation, and logistics. In addition, strong public messaging encouraged reduced travel and energy conservation. A notable policy intervention was the introduction of a “Wednesday holiday” for the public sector, effectively reducing weekly commuting and lowering national fuel consumption. These targeted measures highlight Sri Lanka’s efforts to balance limited energy resources while maintaining essential economic and social functions.