A Threat Beyond Oil
On June 19, senior lawmakers on Iran’s parliamentary National Security Committee publicly listed the possible closure of the Strait of Hormuz among “strategic options” should Western forces strike Iranian interests. Two days later, the full parliament backed a nonbinding motion supporting that warning—an unmistakable signal that Tehran was willing to ratchet up economic pain on itself to deter foreign aggression.
The Strait of Hormuz connects the Persian Gulf to the Gulf of Oman and carries roughly one‐fifth of the world’s seaborne oil trade—about 18 million barrels per day. But its importance extends well beyond hydrocarbons: every shipment out of Iran’s Gulf ports, from petrochemicals to cotton, must thread this 104-mile choke point.
War‐Risk Premiums Surge, Shipping Costs Spike
Even the mere threat of closure has triggered an abrupt rise in insurance costs for vessels calling at Gulf ports. Industry sources tell Reuters that war‐risk premiums for tankers have climbed sharply as booking enquiries slow and underwriters demand heftier surcharges for Gulf transits.
- Booking delays: Charterers are postponing fixture commitments, awaiting clarity on shipping‐lane safety.
- Higher premia: Underwriters now tack on “war‐risk” fees amounting to tens of thousands of dollars per voyage, with some estimates suggesting freight surcharges up to 15 percent for container services—costs that will be passed along to end‐users, including textile mills.
Those extra premiums apply equally to dry‐bulk carriers and containerships, meaning cotton exporters in Bandar Abbas or Kharg Island face the same insurance hit as oil tankers.
Dollar Safe-Haven Frenzy
On June 23, the U.S. dollar index (DXY) jumped roughly 0.4 percent as investors sought refuge from Middle East uncertainties. The parallel‐market rial plunged anew, trading past 1.04 million IRR per USD on Monday—a fresh record low—reflecting sellers’ scramble to shed domestic currency amid looming export‐revenue disruptions.
Emerging‐market currencies felt the knock‐on effects: the Turkish lira dipped 1.2 percent and the South African rand lost 0.8 percent in the same session, underscoring how a Gulf flare-up can reverberate through far-flung FX corridors.
Gold Catches a Safe-Haven Bid
Gold, too, caught a bid as traders hedged against geopolitical fallout. Spot gold climbed to $3,375/oz on June 23—its highest level in nearly two weeks—before paring gains as U.S. equity futures stabilized.
Central bank buying and private demand in Gulf states have already drained global allocated inventories this quarter. A closure of Hormuz—and the attendant premium on Middle East gold shipments—could exacerbate tightness, squeezing vaults from Dubai to Zurich and potentially lifting premiums on physical bars.
Cotton’s Freight Crunch
It’s easy to overlook cotton when oil and bullion hog the headlines. Yet roughly 20 percent of all cotton shipments from Middle East producers and re‐exporters to Asia transit the Strait of Hormuz on containerships and multipurpose vessels. With insurers tacking war‐risk fees of tens of thousands per voyage, traders report cotton‐freight surcharges rising by as much as 10–15 percent on key Gulf–India routes.
For spinning mills in Surat and Karachi—where profit margins are already razor-thin—those extra cents per kilometre add up fast. And because cotton contracts are priced free on board (FOB), importers must absorb higher logistics costs or renegotiate with suppliers, potentially delaying purchases and tightening global availability.
Broader Supply-Chain Reverberations
The combined effect of surging insurance, dollar strength, gold demand and freight‐rate inflation is a vivid illustration of modern supply‐chain interconnectedness:
- FX stress makes financing imports costlier for Iran and other exposed markets.
- Gold’s safe-haven status pulls liquidity into bullion, leaving less for productive investment.
- Cotton’s freight premium tightens soft-commodity balances already strained by U.S. acreage cuts and Indian stock‐drawdowns.
If the Strait of Hormuz remains open, these pressures may ease within days. But if the rhetoric escalates—or if shadow‐mining incidents force insurers to stop providing coverage—the shock waves could endure, reshaping how markets hedge geopolitical risk.
Sources
- Reuters, “Iran’s options against foreign aggression include closing Strait of Hormuz, lawmaker says,” June 19, 2025 reuters.com
- Reuters, “Iran parliament reportedly backs closing Strait of Hormuz, which could spike oil prices,” June 21, 2025 indiatimes.com
- Reuters, “Gold slips as dollar firms, markets await Iran response,” June 23, 2025 reuters.com
- Reuters, “Ships advised to keep their distance from Iran around Hormuz Strait,” June 18, 2025 reuters.com
- Reuters, “Middle East conflict slows tanker bookings, lifts rates,” June 16, 2025 reuters.com
- Statista data on daily oil flow through Hormuz and cotton shipping routes (derived from global shipping‐lane analyses)