Hormuz Strait and Global Economic Risk and Its Implications for Indonesia
The Hormuz Strait and Global Economic Risk and Its Implications for Indonesia
In the complexity of modern global economics, the stability of energy, food, and logistics prices often depends on a number of exceptionally narrow yet strategically vital geographic corridors. One of the most determining routes in the world’s economic system is the Hormuz Strait, a waterway approximately 21 nautical miles wide that connects the Persian Gulf with the Arabian Sea and the Indian Ocean.
At first glance, this route appears small on the world map. However, in practice, the Hormuz Strait is one of the primary arteries of the global energy system. According to the U.S. Energy Information Administration (EIA), approximately 20 million barrels of oil per day pass through the Hormuz Strait, making it one of the world’s most strategically vital energy routes. Beyond crude oil, approximately 20 per cent of the world’s liquefied natural gas (LNG) trade also flows through the same corridor, particularly from Qatar to Asian and European markets.
As a result, every geopolitical tension in the region almost invariably triggers a direct market response in global energy markets. Oil prices surge, risk premiums increase, and international logistics costs face pressure. In an extremely integrated global economy, a regional conflict can quickly spread into a global economic shock.
Energy Chokepoint and Vulnerability of the Global Energy System
In the literature on energy economics and geopolitics, the Hormuz Strait is often categorised as an energy chokepoint—a narrow corridor that becomes a critical node for global energy distribution. This concept explains that the stability of the global energy system depends heavily on a number of transportation routes that have substantial capacity but limited geographic space.
Apart from the Hormuz Strait, the world recognises other strategic routes such as the Suez Canal, the Strait of Malacca, and the Bab el-Mandeb in the Red Sea. However, compared with these other routes, the Hormuz Strait has a far greater concentration of energy flow.
Oil passing through this route originates from major global producers such as Saudi Arabia, Iraq, the United Arab Emirates, Kuwait, and Iran. However, the majority of this energy is not consumed in the Middle East. More than 80 per cent of energy supplies passing through the Hormuz Strait are shipped to Asian markets, particularly China, India, Japan, and South Korea.
This means that the stability of this route determines not only Middle Eastern energy security but also underpins Asian economic growth, which is now the centre of global economic gravity.
Energy as the Foundation of the Global Production System
In modern production economic theory, energy is one of the fundamental inputs in the global production system. Almost all economic activity depends on a stable and affordable energy supply.
Energy drives global transportation, supports manufacturing industries, and serves as a raw material for the chemical and fertiliser industries. Without a stable energy supply, the global production chain would quickly experience disruption.
When energy prices increase due to geopolitical tension, the impact does not stop in the energy sector alone. This increase spreads to various economic sectors through the mechanism of cost-push inflation—inflation driven by rising production costs.
Oil price surges, for example, increase transportation and goods distribution costs. Industries face higher production expenses, whilst the logistics sector must adjust tariffs. Within a relatively short period, this cost pressure ultimately translates into increased prices for goods and services at the consumer level.
From Energy to Food: The Mechanism of Global Inflation
The relationship between energy and food is one of the important dimensions of the global economy that is often poorly understood by the public. The production of nitrogen fertiliser such as ammonia and urea depends on natural gas as a primary raw material. When energy prices increase, fertiliser production costs surge as well. This causes agricultural production costs to rise and pushes global food prices upward.
This phenomenon is known as the energy-food nexus—the structural link between energy prices and food prices. In many global economic crises, energy price surges are almost invariably followed by food price increases.
Distribution disruptions to energy in strategic corridors such as the Hormuz Strait have the potential to reinforce this phenomenon. When energy and fertiliser raw material distribution is disrupted, farmers across various countries face higher production costs. Ultimately, consumers worldwide experience the impact through increased food prices.
Chain of Global Economic Impacts
If analysed systematically, a disruption at the Hormuz Strait can trigger a wide range of global economic consequences. Geopolitical tension in the Gulf region can disrupt global energy distribution. This distribution disruption then drives up oil and gas prices in world markets. When energy prices increase, transportation costs and industrial production costs rise accordingly.
Rising energy costs subsequently affect increased fertiliser prices and agricultural production costs. When agricultural costs increase, global food prices are driven up. This situation creates inflationary pressures across many countries.
In a rising inflation environment, central banks typically respond with tighter monetary policy, including raising interest rates. This policy can ultimately slow global economic growth. Thus, a geopolitical conflict in one region can trigger a domino effect that spreads throughout the entire global economic system.
Challenges for Indonesia: Energy Dependence and Inflation Risk
For Indonesia, the geopolitical dynamics of energy at the Hormuz Strait carry significant economic implications. This is particularly related to Indonesia’s dependence on energy imports.
Data from the Ministry of Energy and Mineral Resources indicate that Indonesia’s current oil consumption is in the range of 1.6 million barrels per day, whilst production capacity continues to decline. This mismatch between consumption and domestic production has forced Indonesia to increasingly rely on imports to meet national energy demand. Disruptions at the Hormuz Strait therefore pose a direct threat to Indonesia’s energy security and economic stability.