Why the Strait of Hormuz Closure Is a Historic Energy Crisis Nobody Planned For

The Strait of Hormuz, a critical chokepoint for global energy, has long been considered too risky to fully close—but recent events have shattered that assumption. Energy experts once dismissed the possibility of a complete shutdown as implausible, even alarmist, in modeling exercises conducted in 2007 and 2022.

"The idea was laughed out of the room," said Sam Ori, who worked on the 2007 exercise at the nonprofit Securing America's Energy Future (SAFE). "The view was that it just wasn't credible and would be seen as alarmist."

The Blind Spot in Energy Planning

This blind spot reflects a real-world application of the "dismal theorem," a concept introduced by the late Harvard economist Martin Weitzman. Originally designed to address catastrophic climate risks, the theorem highlights how extreme, low-probability scenarios often fall outside conventional policy planning.

In the case of the Strait of Hormuz, experts avoided modeling a full closure due to its perceived unlikelihood and overwhelming scale. "Modeling it meant confronting an 'economic apocalyptic scenario,'" Ori explained during a recent conference hosted by SAFE.

The Strait’s Global Significance

The Strait of Hormuz is the world’s most critical energy chokepoint, serving as a vital transit route for approximately one-fifth of the globe’s oil and liquefied natural gas (LNG). Unlike man-made canals such as the Suez or Panama, it is a natural waterway, making its closure a uniquely disruptive event.

"I never looked at a map as precisely as I have done in the last few weeks at the Strait of Hormuz," said Patrick Pouyanné, CEO of TotalEnergies, in a recent interview with Axios. "It's part of the sea, anybody can navigate it." He added that the potential for closure "was probably underestimated."

Lessons from Past Exercises

In 2007, a group of energy experts, including Ori, considered modeling a full closure of the strait but ultimately rejected the idea. "The discussion was, 'come on guys, it has to be credible. That could never happen,'" Ori recounted.

The 2007 scenario, which involved a less extreme disruption, took a full year to push oil prices to $165 per barrel. Today, just two months into the current crisis, oil prices are already hovering around $100 per barrel, with little impact on the stock market.

"If this goes on for another three months, people's view of that is going to change," Ori warned last week.

Recent Developments and Rising Prices

Since Ori’s remarks, oil prices have surged further, recently hitting $126 per barrel.

In 2022, another task force, led by representatives from countries within the International Energy Agency (IEA), also avoided modeling a full Hormuz closure. Landon Derentz, a former Energy Department official who participated in the task force, cited two key reasons for excluding the scenario: it had never happened before, and its scale was deemed too extreme to plan for.