By seeking to close the Strait of Hormuz, the Islamic Republic attempted to hold both the global economy and the Arab Gulf states hostage. But Tehran badly miscalculated: although the disruption imposed significant costs abroad, some of its deepest and most lasting consequences have fallen on Iran itself.
Even after the ceasefire with the United States, Tehran continued to portray the Strait as one of its principal sources of leverage in negotiations. The closure of the Strait in recent months sent global prices for oil, natural gas, petrochemicals and fertilisers sharply higher, fuelling inflation and weakening global economic growth.
Following the ceasefire agreement and the reopening of the Strait of Hormuz, most energy prices retreated to their pre-war levels. More recently, however, renewed Iranian attacks on commercial shipping and subsequent US strikes against Iran have pushed oil prices modestly higher once again.
There is little doubt that Iran succeeded in imposing costs on the international community. Yet those costs fell far short of paralysing the global economy, while Iran itself has proved unable to escape the economic consequences of the crisis it created.
Indeed, one of the least discussed aspects of the Hormuz crisis has been its devastating impact on Iran’s own economy.
Ironically, China – Iran’s only major oil customer and its largest trading partner – became the single biggest obstacle to Tehran’s attempt to destabilise global energy markets.
According to estimates by the International Energy Agency (IEA), faced with soaring oil prices and severe supply shortages, China cut its crude oil imports by roughly 40 per cent, or around 5.5 million barrels per day. By drawing on inventories and sharply reducing imports, Beijing effectively became the world’s largest shock absorber, preventing Iran’s disruption of the Strait from triggering an even more severe global energy crisis.
Data from the commodity intelligence firm Kpler show that between the beginning of last month and the first week of July, China’s purchases of Iranian crude fell to just 650,000 barrels per day – roughly one-third of the volumes imported during the first two months of the conflict.
To be sure, Beijing’s preference for releasing strategic petroleum reserves rather than purchasing oil at prices approaching $110 per barrel was commercially rational. Nevertheless, the disruption of shipping through the Strait of Hormuz inflicted substantial costs on China’s own economy.
Chinese customs data show that bilateral trade with the Arab Gulf states and Oman reached approximately $340 billion last year, while Chinese companies were implementing projects worth around $39 billion across those countries. The disruption of maritime traffic through Hormuz severely affected both trade flows and investment activity.
It is also important to recognise that the economic burden of a Hormuz disruption falls disproportionately on Asia rather than the West. More than 80 per cent of the crude oil and liquefied gases transported through the Strait of Hormuz are destined for Asian markets, with China the largest buyer of Gulf energy exports. By contrast, only around 8 per cent of these energy flows are bound for the European Union and the United States.
In other words, any attempt to weaponise the Strait inflicts its greatest damage on the very markets upon which Iran’s remaining oil exports – and much of Asia’s economic growth – depend.
Iran itself has also paid a heavy price. Its monthly non-oil trade with China has fallen to roughly $200 million – only one-fifth of the level recorded during the same period last year.
The United States resumed its naval blockade of the Islamic Republic in mid-July. During the previous blockade – from April 13 to June 18 – not a single Iranian oil tanker managed to breach it. As a result, Iran’s floating oil storage in its southern waters rose to 60 million barrels, while onshore crude inventories approached 80 million barrels. Ultimately, the Islamic Republic was forced to cut oil production sharply, to 2.3 million barrels per day, most of it for domestic consumption.
In addition to losing its vital export revenues, Iran saw imports of essential goods and foodstuffs come to a standstill, fuelling runaway inflation. Food-price inflation reached triple-digit levels.
The logistical disruption remains severe. The director-general for logistics and support at Iran’s Trade Promotion Organisation recently acknowledged that, even during the ceasefire, shipping a single container from China to Iran cost around $9,000 – roughly three times the pre-war level.
An even more striking contrast can be seen in oil production.
According to the IEA’s latest assessment, the Arab Gulf producers are rapidly restoring crude output following the conflict. Iran, however, has experienced a very different trajectory. During the war – and particularly under the US naval blockade – its oil production fell by approximately 1.29 million barrels per day. Unlike its Arab neighbours, Iran has failed to record any meaningful recovery over the past two months.
Nor should the disruption of Iran’s trade with its Arab neighbours be overlooked. According to the Iran Chamber of Commerce, the Arab Gulf states account for 51 per cent of Iran’s total non-oil foreign trade, with the United Arab Emirates serving as the country’s largest source of imported goods. Over the past five months, virtually all of Iran’s trade with these states – excluding Iraq – has come to a standstill.
Eurostat data also indicate that trade between Iran and the European Union has fallen by around 60 per cent, while Iran’s trade with India has declined by a similar amount. Turkey remains the only major trading partner whose commercial relationship with Iran has neither contracted nor expanded significantly.
Moreover, the disruption of the Strait of Hormuz was followed by strikes on several of Iran’s largest petrochemical and steel complexes, the destruction of multiple power plants and a surge in food-price inflation to well above 130 per cent. These economic shocks have further eroded living standards and intensified public dissatisfaction with the government as the cost-of-living crisis has deepened. Far from strengthening Tehran’s strategic position, the Hormuz gambit has compounded the economic and political pressures confronting the Islamic Republic.
This strategic miscalculation is reminiscent of Tehran’s huge gamble in 2022, which was based on similar logic. When Russia invaded Ukraine in February of that year, Tehran walked away from nuclear negotiations with the United States, counting on a Russian victory and a severe energy crunch in the West. Iranian regime officials openly predicted that Europe’s coldest winter would bring it to its knees and began supplying Shahed drones to Russia. Yet the energy crisis proved manageable, while Russia instead sank into a quagmire that, after four years, has left it without sufficient petrol and diesel for its cars, trucks and industries.
Tehran hoped that weaponising the Strait of Hormuz would force the international community to bear intolerable economic costs. Instead, the crisis has exposed a fundamental strategic miscalculation: the country that has suffered some of the deepest and most enduring economic damage from the disruption of the Strait is Iran itself. In attempting to trap others, the Islamic Republic has fallen into a pit of its own making.
Dalga Khatinoglu is an Iran energy and macroeconomics analyst and Mardo Soghom is a former deputy editor and regional director for West Asia at Radio Free Europe/Radio Liberty
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