The Strait of Hormuz After the Iran War: The Transformation of Geopolitical Leverage

More oil leaving the Persian Gulf would be evidence of adaptation. It would not establish that geopolitical risk has diminished.

That distinction is central to assessing the Wall Street Journal headline, “More Oil Is Now Coming Out of the Persian Gulf Than Before the Iran War.” The headline raises an important question: does recovering throughput demonstrate a lasting erosion of Iran’s leverage, or does it reflect an increasingly expensive effort to sustain deliveries under continuing threat?

PRS’ Risk Governance Board recently discussed aspects of this issue in the form of a general query: how to distinguish physical recovery from improvements in country resilience—and how that distinction should inform investment risk assessment?

What the headline establishes—and what it leaves open

Independent evidence supports a qualified recovery. Reuters reported on October 5 that Kpler’s seven-day average of regional crude exports reached 18.3 million barrels per day on September 30, compared with approximately 18 million in the twelve months before the war. That measure included shipments through Hormuz and alternative outlets. It described regional exports over a particular period, rather than uninterrupted normalization of the strait. 

On October 8, Reuters reported another decline in crude crossing Hormuz, with increased exports through alternative outlets helping offset the loss. 

The IEA’s October report describes a fragile recovery alongside record tanker rates and pressure on refinery margins. Refined products and LPG remained substantially further from recovery than crude. These differences caution against treating a regional export headline as a comprehensive measure of energy security. 

Departures also need to be distinguished from arrivals, production from inventory releases, and gross export receipts from earnings after transport and security costs.

Iran’s leverage may be changing form

Iran’s traditional leverage rests on its capacity to prevent enough energy from reaching markets, for long enough, to impose significant economic damage and potentially extract concessions.

Bypass pipelines can weaken that capacity by moving oil to terminals outside Hormuz. Adapted tanker logistics can also sustain exports, but they provide a different kind of resilience. A tanker that crosses Hormuz before transferring its cargo offshore still passes through the threatened waterway.

The resulting system may preserve volumes while requiring higher freight payments, insurance premiums, handling costs, delays and military protection. Producers may absorb those expenses through lower export netbacks; importers may face higher delivered prices.

This supports a testable hypothesis: Iran’s leverage may be shifting partly from sustained supply denial toward cost imposition.

It does not establish that supply denial has ceased to matter. Alternative pipelines, terminals and transfer areas remain vulnerable. Nor does the ability to inflict losses automatically translate into bargaining power. That requires evidence that other governments change their behavior in response to Iranian pressure.

Country risks are diverging

Saudi Arabia and the UAE possess physical alternatives to Hormuz, giving them options unavailable to some neighboring exporters. Their resilience nevertheless depends on operational infrastructure, secure terminals and safe onward shipping. Restoring volumes through expensive routes may protect revenue while weakening margins.

Iraq’s central vulnerability is dependable access to export markets and the conversion of shipments into usable government receipts. Proposed corridors may improve future resilience, but planned capacity cannot be counted as available capacity.

Iran faces its own trade-off. Disruptive capability may persist while retaliation, impaired trade and payment restrictions weaken its domestic economic position.

Among Asian importers, China’s purchasing scale must be weighed against route exposure and differences among refiners. India’s substitution opportunities depend on compatible feedstocks, transport costs and financing conditions. Japan’s resilience requires reliable procurement and usable inventories. South Korea must consider energy security alongside the competitiveness of refining, petrochemicals and manufacturing.

These are conditional assessments. Current customs, fiscal and financial data are needed before ranking national vulnerability.

Why ICRG is useful for this assessment

ICRG helps connect a geopolitical event to the conditions that determine whether a country can absorb its consequences.

Its separation of political, economic and financial risk is particularly valuable here. Security exposure can remain elevated while exports recover. Higher delivery costs can subsequently affect inflation, growth, fiscal balances or external liquidity. Examining individual components helps identify developments that an aggregate throughput figure would miss.

A common framework also supports comparisons across countries facing different versions of the same shock. An exporter’s ability to preserve receipts raises different questions from an importer’s ability to finance more expensive energy.

Monthly observations and historical ratings extending back to 1984 for most series provide a basis for examining persistence: do disruptions produce temporary strain, or lasting deterioration? Do countries with stronger initial conditions recover faster? 

ICRG complements shipping and market data. It does not replace real-time monitoring, and its usefulness for predicting returns in this episode must be tested rather than assumed.

Which assets carry the exposure?

Energy commodities and derivatives face the most direct physical transmission. Sovereign credit, currencies, bonds and equities transmit the consequences through national finances and corporate cash flows.

Asset class	Principal exposure	Relevant country-risk question
Energy commodities and derivatives	Delivery interruptions, inventory depletion and higher uncertainty affect prices, spreads and volatility.	Can supply reach buyers reliably, and at what additional cost?
Sovereign bonds and credit default swaps	Lost receipts, subsidies and security spending can weaken repayment capacity.	How much fiscal and external financing flexibility remains?
Currencies and local-currency bonds	Higher import bills and inflation can pressure exchange rates and interest rates.	Can reserves and credible policy absorb the shock?
Equities and corporate credit	Input costs, disrupted operations and changing demand affect earnings and debt service.	Which firms can pass on costs, substitute supplies or maintain production?
Infrastructure and private assets	Damage, interrupted operations and higher insurance or financing costs affect valuations.	How dependable are physical redundancy, contracts and government protection?

These are transmission channels, not a measured ranking of market losses. Historical IMF research finds that major geopolitical events can depress equities and raise sovereign risk premiums, with greater vulnerability where fiscal and reserve buffers are limited. It does not establish a uniform response to Hormuz. 

Sector labels also conceal important differences. The IEA’s October report describes freight and crude costs squeezing European and Asian refinery margins while discounted feedstocks benefited US refiners. Procurement arrangements and geography can materially change the investment outcome. 

The governance question is whether resilience survives another shock

A useful focus for PRS’ Risk Governance Board discussion is the evidence required to distinguish durable resilience from costly accommodation.

Three tests are central. Following comparable security incidents, do delivery losses become smaller and shorter? Do abnormal transport and protection costs persist despite recovering volumes? And do those costs materially weaken fiscal balances, external liquidity or political stability?

The research should track unique cargoes, avoid double-counting offshore transfers and distinguish operational bypass capacity from announced projects. It should also account for production policy, demand changes, inventory releases and military protection.

Resilient deliveries accompanied by persistently elevated costs would support the cost-imposition thesis. Renewed, sustained delivery losses would demonstrate continuing supply-denial capacity. Declining disruption and declining abnormal costs across repeated shocks would provide stronger evidence of a broader erosion of leverage.

The WSJ headline is therefore a starting point for analysis. The strategic outcome remains unproven. Oil can keep moving while the costs of moving it redistribute risk across governments, companies and investors.