Crypto community fears Iran choking oil supply and crashing markets, but that may be overblown

As tensions flare once again between Iran, Israel, and the U.S., social media, especially on crypto social media X (or Crypto Twitter), fears that Tehran could shut down the Strait of Hormuz, a vital oil chokepoint. Such a move, many worry, could send oil prices and global inflation soaring and roil financial markets, including bitcoin.

However, those concerns may be exaggerated, according to some observers.

Early Saturday, Israel and the U.S. launched airstrikes on Iran, aiming to dismantle the nation’s nuclear facilities and missile capabilities after failed negotiations. Iran retaliated by firing ballistic missiles at Israel and the U.S. bases in the region, escalating fears of a full-blown military conflict.

This sparked jitters in the crypto market, the only venue open for investors to express fear and risk, while traditional markets stay closed over the weekend.

Bitcoin BTC$64,998.88, the leading cryptocurrency by market value, dropped to $63,000 from around $65,600 before rebounding to $65,000. Oil-linked futures on Hyperliquid surged more than 5%.

Hormuz fears

The Strait of Hormuz is a chokepoint (21 miles wide at its narrowest point) between Iran to the north and Oman to the south, and facilitated about 20 million barrels of oil shipments each day in 2024, according to the U.S. Energy Information Administration (EIA).

Naturally, amid simmering tensions, crypto accounts on X are worried that Iran may close the Strait of Hormuz, choking off oil supplies.

“If a direct conflict between the United States and Iran has begun, this isn’t just geopolitics. It’s a global economic event. If the Strait of Hormuz is threatened, oil could spike toward $120–$150,” an X handle called @Crypto_Diet said.

This could lead to an inflation shock, market sell-offs, a dollar surge, and depreciation in emerging-market currencies, the post added.

Several more accounts have posted similar views, with some savvy geopolitical experts sharing these concerns.

“Oil prices had already climbed to six-month highs ahead of the strikes. Iran is a founding OPEC member and the Strait of Hormuz, through which roughly 20% of global oil passes, is now directly implicated,” Geopolitical Strategist Velina Tchakarova said.

On top of that, some news outlets are already reporting that several oil majors, including trading houses, have suspended oil and fuel shipments through the strait.

Outright closure unlikely

Some observers, however, argued that an outright closure of the strait is not in Iran’s best interests and may be geographically impossible.

According to Daniel Lacalle, a PhD economist, fund manager, and chief economist at Tressis, Iran currently produces 3.3 million barrels per day of oil, but exports just half of that, which almost entirely goes to its ally China.

“It would shoot itself in the foot,” Lacalle said, downplaying fears of an eventual Iranian shutdown of the strait.

He added that OPEC members could quickly offset any potential disruption to oil supplies from Iran, while stressing that the United States, by itself, is the world’s largest oil producer.

In other words, any spike in oil prices could be measured and temporary.

The other aspect to consider is Geography. While the strait is split roughly in the middle between Iran and Oman, the shipping lanes are predominantly in Omani waters. It’s because water on the Iranian side is said to be shallower, while on the Omani side, it is deeper and better suited for the movement of large oil tankers.

So, technically, ships could pass through Oman’s yard, which means Iran’s closure of its territory may not have a big impact on supplies.

“Most waterways are in Oman, not Iran,” Energy Market Expert Dr. Anas Alhajji said on X.

“Hormuz strait has never been blocked despite all wars – It cannot be blocked. Too wide. Well protected,” he added.

All things considered, the odds of Iran shutting the strait and choking off oil supplies are low. That said, an all-out war can still trigger widespread risk aversion, potentially driving bitcoin below the widely watched $60,000 support level.

Meanwhile, bitcoin’s price chart also signals a potential for deepening of the bear market ahead amid the Middle East crisis.