Strait of Hormuz: Its Importance and Impact on Saudi Markets

The Strait of Hormuz is a narrow waterway that separates the Arabian Gulf from the Gulf of Oman, with its narrowest point measuring about 39 km, making it one of the most important maritime passages in the world. The strait is bordered by Iran to the north and Oman and the UAE to the south, serving as the sole outlet for oil and gas exports for most Gulf Cooperation Council countries. The strait's importance lies in its role as a primary window for energy flow, through which the majority of Saudi oil and petrochemical exports reach global markets. Given its proximity to major production centers in the region, any disruption in the security of the strait or shipping movements directly impacts the international economy and Saudi Arabia in particular. This sensitive geographical location makes the strait a constant focal point in the security and economic strategies of the bordering countries.

The importance of the Strait of Hormuz extends beyond geography to geopolitical and security dimensions. Amid recurring regional tensions, such as conflicts between Iran and some Western countries or events in the Gulf region, the strait becomes a focal point for international energy-related policies. In recent years, there has been an increase in threats to close the strait or target oil tankers, which immediately reflects on global oil markets and energy prices. For Saudi Arabia, the stability of the Strait of Hormuz is vital to ensuring the continuity of government revenue flows from oil and gas exports, and any threat to the strait prompts the government and major companies to take precautionary measures to ensure supply sustainability. For these reasons, the Kingdom collaborates with its regional and international partners to maintain the security of the strait and ensure freedom of navigation.

The Strait of Hormuz acts as a safety valve for the Saudi economy, which is based on oil and gas exports. Despite the existence of alternative pipelines such as the East-West pipeline connecting Abqaiq to Yanbu via the Red Sea, the majority of Saudi crude still passes through the Arabian Gulf and then the Strait of Hormuz. Several sectors, particularly energy and petrochemicals, rely on the continuity of shipments through the strait to reach global markets. Any delay or closure directly affects government revenues and hard currency cash flows, putting pressure on the balance of payments. According to 2024 statistics, oil and gas exports accounted for over 40% of Saudi GDP, with most revenues derived from shipments crossing the strait. Therefore, the stability of the Strait of Hormuz is crucial for achieving the economic goals of Saudi Vision and developing non-oil sectors.

International reports, such as those from the International Energy Agency for 2024 and 2025, indicate that the average oil flows through the Strait of Hormuz reached approximately 15 to 20 million barrels per day. This figure is among the highest globally and reflects the international dependence on the strait. Flow rates increased during 2024 due to rising oil production in the Gulf and some countries surpassing sanctions. In terms of reserves, Saudi Arabia maintained its lead with proven oil reserves of about 262 billion barrels, with daily production ranging between 10 and 12 million barrels according to OPEC+ agreements. Most of this production is directed for export through the strait, meaning that any change in shipping movements directly impacts market supplies and the performance of major companies like Aramco. Markets have also shown sensitivity to any announcement of geopolitical escalation; for example, with threats in June 2025, Brent crude prices rose above $90 before stabilizing as tensions eased.

The impact of the Strait of Hormuz extends to several key sectors in the Saudi financial market. The energy sector is the most affected, as companies like Aramco (2222), PetroRabigh, and SABIC rely on exporting their products through the strait. The maritime transport sector is also affected, with companies like Bahri (4080) facing high insurance costs and fluctuations in shipping schedules during heightened risks. The insurance sector sees increased demand for marine coverage, while financial services and brokerage firms experience a greater need for hedging instruments. Research and consulting companies also issue analytical reports on the implications of any developments in the strait, enhancing their role in the market. As risks increase, the frequency of fluctuations in the stock prices of related companies rises, and investors become more selective in their investments, focusing on monitoring official data and government statements.

Saudi Arabia has recognized the importance of diversifying oil export routes for years to reduce reliance on the Strait of Hormuz. One of the most notable alternatives is the East-West pipeline, which extends from Abqaiq to Yanbu on the Red Sea with a capacity exceeding 5 million barrels per day. This pipeline allows for direct oil exports to European and American markets without passing through the strait. The Kingdom is also working on developing new projects, including maritime pipelines with Jordan and the UAE, and plans to expand storage facilities on the Red Sea. These alternatives provide Saudi Arabia with the ability to sustain exports in the event of any emergency in the strait, enhancing the resilience of the national economy against geopolitical disruptions. Nevertheless, the strait remains a primary route that cannot be completely dispensed with at this time.

The Strait of Hormuz region is characterized by high geopolitical risks due to recurring tensions between Iran and Western countries or its Gulf neighbors. Threats of closure or targeting oil tankers are recurring factors that affect market sentiment. In June 2025, Iranian statements regarding the potential closure of the strait caused a temporary spike in global oil prices and limited movements in Saudi stock indices. These risks are associated with additional costs for transport and insurance companies, prompting major firms to develop contingency plans for transporting shipments via alternative routes. However, past experiences have shown that swift international interventions often work to contain crises, reducing the likelihood of a complete closure of the strait. Continuous monitoring of news and official statements remains a crucial factor in managing these risks.

The Saudi economy and local stock market are directly affected by global oil prices, which fluctuate according to developments in the Strait of Hormuz. As risks escalate, Brent crude prices rise, enhancing the revenues of oil companies and positively impacting their stocks. However, exported quantities may be negatively affected if shipping movements are disrupted. In 2025, the Saudi market experienced relative stability despite tensions, driven by the resilience of alternative pipelines and massive oil reserves. Additionally, financial hedging strategies among companies and investors helped mitigate volatility. In the long term, the stability of the strait fosters confidence in the market, while escalating tensions necessitate a review of export plans and diversification of income sources.

Companies like Saudi Aramco play a pivotal role in managing risks related to the Strait of Hormuz by developing alternative infrastructure and increasing their strategic stock of oil and petrochemical products. Maritime transport and insurance companies contribute by providing flexible solutions for securing shipments, while research and consulting firms offer periodic analyses that help investment funds and investors anticipate developments. At the governmental level, the Ministry of Energy focuses on diversifying export routes and enhancing regional and international cooperation to ensure the security of the strait. All these efforts aim to minimize the impact of any potential crisis and enhance the sustainability of economic growth in the Kingdom.

In recent years, several notable events have impacted the Strait of Hormuz, the most significant being Iran's threats to close the strait in June 2025, which led to movements in oil markets and limited fluctuations in Gulf indices. The period also recorded incidents of attacks on oil tankers in the region and a temporary rise in marine insurance costs. In response, Saudi Arabia enhanced emergency measures and confirmed through official statements the capability of alternative pipelines to compensate for a significant portion of exported quantities. Internationally, major powers have shown commitment to ensuring freedom of navigation in the strait, leading to market stability after periods of tension. These events underscore the importance of continuous monitoring of developments in the strait for both local and international investors.

The stability of Saudi oil exports relies on the efficiency of alternatives available to the Strait of Hormuz, foremost among them the East-West pipeline that allows for oil exports via the Red Sea. Expanding this pipeline and the associated storage facilities provides the Kingdom with additional flexibility in crisis management. New pipeline projects with neighboring countries are also underway, along with the development of ports and logistical facilities on the Red Sea. These alternatives do not eliminate reliance on the strait entirely, but they reduce the level of risks and provide markets with additional confidence in the continuity of oil flows even in emergencies. Official statements indicate that Saudi Arabia is capable of meeting market needs for a period even in the event of significant disruption in the strait.

In addition to energy and petrochemicals, sectors such as basic materials, maritime transport, insurance, and even some consumer sectors are affected when tensions in the Strait of Hormuz escalate. Rising oil prices may lead to increased domestic inflation rates, impacting consumers' purchasing power. Sectors such as tourism and hospitality are indirectly affected due to declining investment confidence during crises. On the other hand, financial services and consulting companies may benefit from increased demand for hedging and risk management tools. Ultimately, the stability of the Strait of Hormuz positively reflects on all sectors of the Saudi economy, while any disruptions necessitate a review of business and operational strategies.

The Saudi Capital Market Authority and the Saudi Arabian Monetary Authority (SAMA) address developments in the Strait of Hormuz by monitoring financial markets and issuing regulations for trading during crisis periods. Regulatory bodies are committed to ensuring transparency and providing accurate information to investors, encouraging companies to disclose any material impacts of developments in the strait on their operations. Investors are also encouraged to diversify their portfolios and not overly rely on a single sector. In cases of severe volatility, the authority may take additional measures to regulate trading and ensure financial stability. These regulatory measures enhance investor confidence in the Saudi market even amid regional crises.

Financial experts advise diversifying investment portfolios and not focusing solely on energy sector stocks or companies linked to the strait. Investors can add hedging instruments such as government bonds or invest in sectors less affected by geopolitical disruptions, such as technology or consumer goods. It is also preferable to follow official reports from Tadawul, the Capital Market Authority, and Aramco, relying on reliable sources of information. Managing financial risks requires a deep understanding of market dynamics and developments in the Strait of Hormuz, with the importance of consulting a licensed financial advisor before making any investment decisions.