Strait of Hormuz at center of Iran-US calculus amid escalating tensions

The Strait of Hormuz has emerged as the focal point of escalating tensions between Iran and the United States, eclipsing discussions about Iran's nuclear program. This strategic waterway has become the central issue in a conflict that began on February 28, with disagreements over the strait's future proving the most intractable in US-Iranian negotiations.

Recent events, including attacks on two tankers transiting the strait, have intensified the situation. Gulf countries condemned the attacks, blaming Iran, which led to US strikes on Iranian territory. Tehran retaliated by striking Bahrain and Kuwait. In response, US President Donald Trump declared a memorandum of understanding between Iran and the US void.

Disruptions in the Strait of Hormuz carry immediate and severe economic consequences. Approximately one-fifth of the world's oil and liquefied natural gas normally passes through the strait. Iran has leveraged its control by mining the strait and attacking vessels, reducing traffic by about 95 percent. The International Energy Agency has described this as "the largest supply disruption in the history of the global oil market."

However, Iran's strategic advantage is also a significant liability. The country's oil exports have plummeted by over 90 percent as US naval enforcement has squeezed its "shadow fleet." Iranian crude is now selling at a substantial discount. The World Bank had already projected economic contraction for Iran in 2026, and the collapse of oil sales due to the strait's closure will have far-reaching effects.

Iran's insistence on asserting joint authority over the strait and proposing transit fees is driven by more than just potential revenue. It is about establishing precedent and sovereignty over a critical chokepoint. This leverage is particularly important as Iran seeks concessions on sanctions relief and the release of frozen assets, though the extent of asset release remains contested.