Strait of Hormuz Closure Sparks Energy Crisis in Asia

The Strait of Hormuz, a narrow waterway that serves as a critical chokepoint in the global energy system, has become the epicenter of a brewing energy crisis in Asia. With nearly 20 million barrels of oil per day—amounting to about 34 percent of the world's crude trade—passing through this vital corridor, any disruption has far-reaching implications. Recent developments, including the declaration by IRGC brigadier-general Ebrahim Jabari that the strait is closed, have sent shockwaves through the energy markets.

As a result of this closure, approximately 150 oil and liquefied natural gas (LNG) tankers have been left stranded, prompting major producers like Qatar Energy to halt production and declare force majeure. The immediate impact was stark; LNG benchmarks surged by 39% in just one trading session, leading governments across Asia to implement energy-saving measures, including work-from-home orders.

In 2024, over 80% of the crude and LNG that transited the Strait of Hormuz was destined for Asian markets, with China, India, Japan, and South Korea accounting for nearly 70% of all crude flows. The closure of the strait has left Asian countries scrambling for alternative energy sources. Notably, Saudi Arabia and the United Arab Emirates can only send about 2.6 million barrels of crude oil per day through existing bypass pipelines, a far cry from the 20 million barrels per day that are now effectively trapped.

While the Strait of Hormuz has long been a critical artery for oil and gas exports, the current situation underscores the vulnerability of relying on this single route. Saudi Arabia, the world's largest crude exporter, accounts for a staggering 37.2% of oil shipments through the strait. Iraq follows with 22.8%, while the United Arab Emirates and Iran contribute 12.9% and 10.6%, respectively. Kuwait rounds out the top five exporters, accounting for 10.1%.

Despite investing in pipelines to bypass Hormuz, Saudi Arabia still relies heavily on this route for a significant portion of its exports, primarily to Asian markets such as China, Japan, South Korea, and India. Any prolonged disruption would not only affect Saudi export revenues but also have a ripple effect on the global oil market.

As the crisis unfolds, Asian countries are increasingly looking towards North America for energy solutions. Canada, in particular, has emerged as a viable alternative. The LNG Canada project, which began shipping in June 2025, offers a new Pacific energy route that completely bypasses the Strait of Hormuz, the Strait of Malacca, and the South China Sea. This route allows cargoes to load directly into the North Pacific and reach Northeast Asian terminals without navigating through any potential chokepoints.

The Trans Mountain Expansion pipeline, which came online in May 2024, has nearly tripled its maximum capacity to 890,000 barrels per day. This expansion has significantly bolstered Canadian crude exports to Asia, particularly to China, which is now emerging as a key buyer. The Alberta-to-Asia route is perceived as politically stable and does not depend on the volatile conditions surrounding the Strait of Hormuz.

In contrast, the United States, despite being the world's largest LNG exporter, faces geographical challenges that hinder its ability to supply gas-hungry Asian markets. Most U.S. LNG export terminals are located on the Gulf Coast or the East Coast, making it a lengthy process to transport LNG to Asia. It can take up to 24 days to ship an LNG tanker from the Gulf Coast, through the Panama Canal, to Japan. In comparison, shipping from Kitimat in Canada takes just 11 days, making it a more efficient option for Asian buyers.

Looking ahead, the next tranche of Canadian LNG is set to come online soon. LNG Canada Phase 2 is projected to provide an additional 14 million tonnes per annum, with a final investment decision expected by late 2026 or early 2027. If both phases proceed, Canada’s total Pacific LNG export capacity could exceed 40 million tonnes per annum by the early 2030s.

Asian utilities and importers, such as JERA and INPEX, that lock in long-term contracts will find themselves with a structural insurance policy against future supply shocks related to the Strait of Hormuz. The current predicament illustrates the risks associated with over-reliance on a single chokepoint for energy security. As tensions escalate in the region, it becomes increasingly clear that diversifying energy sources is essential for long-term stability.

The situation in Hormuz serves as a live demonstration of the vulnerabilities that arise when energy security hinges on a narrow passage flanked by hostile powers. For Asian energy buyers, the need for alternatives has never been more pressing. With Canada offering a stable, efficient route for oil and gas exports, it stands poised to become a key player in the global energy landscape.

As the geopolitical landscape continues to shift, the repercussions of the Strait of Hormuz closure will likely resonate for years to come. With Asian markets facing immediate challenges, the focus will undoubtedly turn towards securing alternative energy routes that can withstand the uncertainties of the current global climate.