The Zhitong Finance App learned that Guojin Securities released a research report saying that on December 23, according to a Reuters report, Brigadier General Naqdi of the Islamic Revolutionary Guard Corps of Iran threatened that they would block the Mediterranean Sea, the Strait of Gibraltar, and other waterways. On December 26, Islamic Revolutionary Guard Corps Major General Musawi was attacked and killed. Iranian President Raisi said Israel would “pay the price” for this, and the situation may escalate further. As of the first half of 2023, oil, which accounts for 20% of global oil consumption, is shipped through the Strait of Hormuz, and LNG, which accounts for 26% of global liquefied natural gas (LNG) consumption, also needs to pass through the Strait of Hormuz. If the Strait of Hormuz is blocked, it may directly have a huge impact on oil and gas supply and significantly boost oil and gas prices.

Guojin Securities reviews are as follows:

A question: Is a blockade of the Mediterranean highly feasible? Compared to the Mediterranean, the blockade of the Strait of Hormuz is more worrisome

Iran's current naval forces may find it difficult to achieve a blockade of the Mediterranean Sea, and the probability of a missile blocking the Strait of Gibraltar is also relatively low. According to the “World Modern Warships List” statistics based on naval size and other indicators, there is still a certain gap in Iran's naval strength compared to some countries along the Mediterranean coast and forces such as the US and Britain, so the possibility of achieving a direct naval blockade is low. According to Missile Threat data, most of Iran's missiles have a range of less than 2,500 km, and it may be difficult to reach Gibraltar. Compared to the blockade of the Mediterranean Sea, Iran's blockade of the Strait of Hormuz is more likely and more likely. Similar to the interference of the Red Sea region by the Joseon armed forces in Yemen, Iran's blockade of the strait did not depend on the actions of surface ships. The narrowest point of the Strait of Hormuz is only 21 nautical miles (39 km). The large-scale deployment of mines, widespread use of drones, and complete missile coverage are enough to threaten navigation through the strait and achieve a de facto blockade.

Second question: If the Strait of Hormuz is blocked, what impact will it have on the market? Oil and gas prices may be significantly impacted

If the Strait of Hormuz is blocked, it may directly have a huge impact on oil and gas supply and significantly boost oil and gas prices. As of the first half of 2023, oil, which accounts for 20% of global oil consumption, is shipped through the Strait of Hormuz, and LNG, which accounts for 26% of global liquefied natural gas (LNG) consumption, also needs to pass through the Strait of Hormuz. By destination, crude oil imports from China, India, Japan, South Korea, and Europe were hit hard, with China accounting for up to 30.1%. There has been no direct blockade of the Strait of Hormuz in nearly 50 years. There are two types of situations for reference. First, during the “tanker war” of 1980 to 1988, oil prices initially soared, but had little impact on navigation and failed to disrupt more than 2% of Persian Gulf vessels. Second, since 1997, there have been 7 “blockade threats”/“ship arrests” in Iran. Oil prices rose by an average of 2.8%, 5.6%, and 6.3% on the same day, the last 5 trading days, and the last 10 trading days, then mostly falling.

Question 3: If a blockade occurs, what interpretations are worth paying attention to?

The protracted Red Sea issue, and the probable threat of pipeline detours in the Strait of Hormuz is enough to disrupt the resolution of the Red Sea issue, causing freight rates to remain high. Currently, the United States has launched the “Guardians of Prosperity” operation to resolve the Red Sea issue. However, once Iran harasses the Strait of Hormuz or the Eastern Mediterranean by Hezbollah in Lebanon, it may disperse the US military forces and cause the Red Sea issue to prolong. According to Clarkson's estimates, the Red Sea problem will increase the cost of 5 US dollars/ton for tanker routes and 48 US dollars/TEU for ocean container routes. After the blockade of the Strait of Hormuz occurred, some crude oil may be “circumvented” through pipelines. Saudi Arabia, the United Arab Emirates, and Iran all have operating pipelines that can bypass the Strait of Hormuz. The total transportation scale of the various Saudi pipelines is about 7 million barrels/day; the UAE pipeline has a transportation capacity of about 1.5 million b/day; the Iranian pipeline has a transportation capacity of about 300,000 barrels/day. The total unused production capacity of these pipelines is about 3.5 million b/d, but even if used successfully, there is still a capacity gap of 17 million b/d.

Risk warning: 1. The situation in the Middle East escalates further: if the blockade is implemented, or there is a possibility that a large-scale war will break out in the Middle East, Sunni countries such as Saudi Arabia may also participate in the war if their interests are seriously damaged. 2. Accidental damage to the tanker caused the passage of the strait to be blocked: the narrowest point of the Strait of Hormuz is only 39 kilometers. Under extreme circumstances, a “accidental attack” by an oil tanker on a narrow channel may also seriously block navigation.