The Strait of Hormuz: A Small Passage That Shapes the World's Energy Flow

 

The Strait of Hormuz is a narrow stretch of water linking the Persian Gulf with the Gulf of Oman and the Arabian Sea. At its slimmest point, it's around 33 kilometers wide. This vital passage lies between Iran to the north and the United Arab Emirates along with Oman's Musandam region to the south. It plays a crucial role in global energy transport, as a significant portion of the world’s oil—nearly a fifth—passes through it each day. Despite its size, the strait is deep enough to handle massive oil tankers, and carefully marked shipping lanes help manage the constant flow of vessels. Because of its importance to international trade and energy, the Strait of Hormuz holds a central place in geopolitical discussions.

For reliable information:  

U.S. Energy Information Administration https://www.eia.gov  

International Crisis Group https://www.crisisgroup.org  

BBC News https://www.bbc.com  

The escalating tensions in the Strait of Hormuz represent a significant geopolitical flashpoint with far-reaching economic and security implications. As a strategic chokepoint through which nearly a quarter of global oil and a substantial portion of liquefied natural gas (LNG) pass, any threat to its navigability immediately disrupts energy markets and maritime trade. Iran’s recent signaling—through military posturing, parliamentary approval for a potential blockade, and the preparation of naval mines—suggests a calibrated strategy to leverage its geographic advantage in response to U.S. and allied pressure. Although the strait remains open, the increased insurance premiums, rerouting of commercial vessels, and volatility in global oil prices reflect the fragility of global dependence on a single maritime corridor. The situation underscores the vulnerabilities of energy supply chains and raises the risk of broader regional escalation, especially if either side miscalculates or if a third-party actor provokes an unintended confrontation.

 

From Iran’s perspective, the growing tensions in the Strait of Hormuz are a response to what it views as persistent Western aggression and unjustified economic warfare, primarily led by the United States. Tehran sees the strait not only as a vital national asset but also as a powerful geopolitical tool—one of the few strategic levers it can use to push back against sanctions, military threats, and international isolation. Iran's signaling of a potential blockade and preparation of naval mines are intended less as a declaration of war and more as deterrence—a message that it will not remain passive while its sovereignty and economic lifelines are threatened. In Tehran’s view, the West’s presence in the Persian Gulf, including U.S. bases and naval patrols, represents a long-standing provocation. By escalating its posture in Hormuz, Iran aims to raise the costs of continued pressure and force diplomatic engagement on terms more favorable to its national interests, particularly regarding sanctions relief and regional autonomy.

 

FAQ:

Iran’s Perspective on the Strait of Hormuz Crisis

Q1: Why does Iran consider the Strait of Hormuz so important?

A: The Strait of Hormuz is a vital strategic and economic lifeline for Iran. It lies at Iran’s southern border and serves as the main passageway for its oil exports. Iran also sees it as a zone of influence and a strategic lever in regional power dynamics. In times of political or military pressure, Iran views control of this chokepoint as a way to assert sovereignty and resist foreign interference.

Q2: Why is Iran threatening to close or disrupt the Strait?

A: Iran sees these threats as a form of strategic deterrence. With the U.S. increasing military pressure and maintaining heavy economic sanctions, Tehran wants to show it has the ability to respond in a way that affects global powers directly—particularly by disrupting energy markets. It believes that if its economy is being strangled, others should feel the consequences too.

Q3: Has Iran done this before?

A: Yes. Iran has historically used the Strait of Hormuz as a bargaining chip during times of tension. During the 1980s "Tanker War" in the Iran-Iraq conflict, and again in 2011–2012 during nuclear tensions, Iran issued similar threats and engaged in naval maneuvers. While it has rarely followed through with full blockades, its naval capabilities allow for asymmetric disruption.

Q4: What does Iran want from the international community?

A: Primarily, Iran wants an end to U.S.-led sanctions, recognition of its regional influence, and assurances against regime-change efforts. It also seeks a more balanced approach from global powers regarding Israel and Gulf Arab states. The Strait is one of the few bargaining tools it can use to bring global attention to these demands.

Q5: Does Iran want a war?

A: No, Iran likely does not want a full-scale war. Its strategy relies more on asymmetric tactics—deniable actions like drone attacks, naval harassment, or cyber operations—meant to pressure adversaries without triggering direct confrontation. However, miscalculations by any side could unintentionally spark broader conflict.

Q6: How is Iran preparing for potential escalation?

A: Iran has increased military readiness, deployed fast-attack boats, drones, and possibly naval mines. It’s also engaged in political signaling—through parliamentary motions and public statements—while maintaining plausible deniability. Domestically, the government is rallying nationalist sentiment and preparing the public for a prolonged standoff.

Q7: How does Iran justify its actions under international law?

A: Iran argues that U.S. sanctions and military actions violate international norms, particularly Iran’s sovereignty and right to self-defense. Tehran contends that if its economy is being blockaded de facto, it has the right to respond by exerting control over its territorial waters and surrounding region.

 

Western Perspective on the Strait of Hormuz Crisis

Q1: Why is the Strait of Hormuz important to the West?

A: The Strait of Hormuz is a strategic chokepoint for the global energy supply. Roughly 20–25% of globally traded oil and about one-third of liquefied natural gas (LNG) passes through it. For the West—especially the U.S., EU, Japan, and other energy-importing countries—free navigation through the strait is essential for economic stability and energy security.

Q2: Why does the West view Iran’s threats seriously?

A: Iran’s repeated threats to close the Strait, combined with its history of naval harassment, mine-laying, and seizure of commercial vessels, are seen as credible and destabilizing. Western analysts see these moves not just as posturing but as part of Iran’s broader strategy to disrupt the international system when under pressure. The threat of disruption to global trade and oil prices is taken very seriously by financial markets and national security establishments.

Q3: Is Iran allowed to block or control the Strait of Hormuz under international law?

A: No. Under the United Nations Convention on the Law of the Sea (UNCLOS), which governs maritime rights (though the U.S. has not formally ratified it), the Strait is considered an international waterway. That means all countries have the right of transit passage. Blocking or mining the Strait would violate international law and could be interpreted as an act of aggression.

Q4: What actions has the West taken in response?

A: The U.S. maintains a strong naval presence in the Persian Gulf, including the Fifth Fleet based in Bahrain. The U.K., France, and other NATO allies have occasionally deployed ships to ensure freedom of navigation. Multinational coalitions such as the International Maritime Security Construct (IMSC) have been formed to escort tankers and deter Iranian aggression. Intelligence and satellite surveillance have also been increased.

Q5: Does the West consider Iran’s concerns legitimate?

A: While the West acknowledges that Iran has economic and security concerns—particularly over sanctions and regional threats—it largely sees Iran’s tactics as coercive and dangerous. Most Western governments argue that diplomatic solutions are available but that Iran undermines its own position by using threats and force rather than negotiation and compliance with international norms.

Q6: Could a military conflict break out?

A: Yes, especially if Iran miscalculates or if a commercial vessel is attacked or mined. Even a single incident could trigger a military response, escalation, or regional war. That’s why Western navies are on high alert, and there’s growing diplomatic pressure to reduce tensions. However, most Western governments prefer deterrence and containment over open conflict.

Q7: How is the crisis affecting global markets?

A: Oil prices have already surged due to uncertainty, with Brent crude hovering near or above $100/barrel. Shipping insurance premiums have risen, and some shipping routes are being diverted. There is concern that prolonged instability could increase inflation, slow down economic recovery in the West, and even trigger a global energy crisis if the strait is blocked for an extended period.

Q8: What is the West’s long-term strategy?

A: The West aims to preserve freedom of navigation, contain Iran’s disruptive capabilities, and push for a diplomatic solution—ideally a return to a nuclear agreement with broader regional security guarantees. There is also growing investment in energy diversification (e.g., LNG, renewables) and building resilience to reduce dependence on Middle Eastern oil.

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Explain Transshipment – UCPDC Perspective

 Explain Transshipment – UCPDC Perspective

In international trade finance, transshipment is far more than a logistics procedure—it represents a potential risk node and a source of documentary complexity within the framework of letters of credit governed by UCP 600. While Article 20(a)(iv) allows transshipment under certain conditions—particularly when goods are containerized and the transport is covered under one and the same bill of lading—this permissibility is often misunderstood. Critically, the UCP is always subordinate to the terms of the credit itself. If an LC explicitly prohibits transshipment, any evidence of multiple loading and unloading points, especially outside a containerized context or involving multiple bills of lading, could render the presentation discrepant. In practical terms, transshipment is frequently unavoidable due to logistical limitations, such as port constraints or lack of direct shipping routes. However, trade finance operates in a world of documentary independence, where even legally and operationally valid transshipment may lead to rejection if the paper trail is inconsistent or unclear.

The risks associated with transshipment go beyond documentary issues. It increases exposure to delays, damage, customs complications, and unclear liability during cargo transfer between modes or carriers. Therefore, a UCPDC practitioner must approach this clause strategically. When drafting LCs, vague terms like “transshipment not allowed” should be avoided unless operationally required. A more precise clause such as “transshipment permitted, provided goods remain containerized and covered by a through bill of lading” aligns better with trade realities. Similarly, document checkers must rigorously examine the transport document for signs of a genuine through shipment, confirming continuity and container integrity. For exporters and freight forwarders, transshipment requirements should be discussed during contract negotiation and LC application to avoid last-minute complications. Ultimately, transshipment is not a minor detail but a critical intersection between commercial practice and documentary compliance. Its proper handling can mean the difference between seamless payment and costly rejection. 

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Fifty important multiple choice questions (MCQs) on Incoterms (International Commercial Terms), suitable for learning or quiz practice

 

Fifty important multiple choice questions (MCQs) on Incoterms (International Commercial Terms), suitable for learning or quiz practice

Multiple Choice Questions (MCQs) on Incoterms

1. What does “Incoterms” stand for?
A. International Commercial Terms
B. International Company Terms
C. Internal Commercial Transactions
D. International Contract Templates
Correct: A

2. Who publishes Incoterms?
A. WTO
B. ICC
C. IMF
D. WCO
Correct: B

3. Which Incoterm gives maximum responsibility to the buyer?
A. CIF
B. FOB
C. EXW
D. DDP
Correct: C

4. Which Incoterm gives maximum responsibility to the seller?
A. EXW
B. DDP
C. CIF
D. FOB
Correct: B

5. In CIF, who pays for insurance?
A. Buyer
B. Seller
C. Shared
D. Carrier
Correct: B

6. In EXW, where is delivery considered complete?
A. At buyer’s warehouse
B. At customs
C. At seller’s premises
D. At port of origin
Correct: C

7. Which Incoterm replaced DAT in Incoterms 2020?
A. DPU
B. DDP
C. FCA
D. CIP
Correct: A

8. What is the main mode of transport for FOB?
A. Air
B. Rail
C. Road
D. Sea
Correct: D

9. Under DDP, who pays import duties?
A. Seller
B. Buyer
C. Carrier
D. Customs broker
Correct: A

10. Under FCA, who arranges export clearance?
A. Buyer
B. Seller
C. Both
D. Carrier
Correct: B

11. Which Incoterm is most suitable for containerized goods handed over at a terminal?
A. FOB
B. FAS
C. FCA
D. EXW
Correct: C

12. What does DPU stand for?
A. Delivered at Port Unloaded
B. Delivery Payment Unloaded
C. Delivered at Place Unloaded
D. Duties Paid Unloaded
Correct: C

13. In which Incoterm does the seller bear all risks and costs up to destination, including duties?
A. DDP
B. DPU
C. CFR
D. FCA
Correct: A

14. Which Incoterm requires the seller to unload the goods at destination?
A. DDP
B. DPU
C. DAP
D. CIF
Correct: B

15. Which term applies to sea transport where the seller delivers goods alongside the vessel?
A. FOB
B. FAS
C. CFR
D. CPT
Correct: B

16. Under CIP, who pays for insurance?
A. Buyer
B. Seller
C. Shared
D. Customs
Correct: B

17. Which Incoterm should not be used for containerized shipments?
A. FOB
B. FCA
C. CIP
D. DAP
Correct: A

18. What type of insurance must the seller provide under CIF?
A. Institute Cargo Clauses A (All Risk)
B. Institute Cargo Clauses C (Minimum)
C. No insurance required
D. Full coverage including delay
Correct: B

19. What Incoterm means the seller is only responsible up to placing goods on board the ship?
A. FOB
B. CIF
C. CPT
D. DAP
Correct: A

20. What is the latest version of Incoterms as of 2020?
A. Incoterms 2015
B. Incoterms 2010
C. Incoterms 2020
D. Incoterms 2022
Correct: C

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21. Which Incoterm allows use of the seller’s own transport for delivery?
A. FCA
B. CIF
C. EXW
D. FOB
Correct: A

22. In DAP, who is responsible for unloading the goods?
A. Seller
B. Buyer
C. Carrier
D. Customs
Correct: B

23. Which Incoterm is best for multimodal transport with seller responsible to named place?
A. CFR
B. CIP
C. FOB
D. FAS
Correct: B

24. Under which Incoterm is risk transferred at the port of loading onto the vessel?
A. FOB
B. DDP
C. EXW
D. FCA
Correct: A

25. Which of the following is NOT a Group D Incoterm?
A. DPU
B. DDP
C. DAP
D. CPT
Correct: D

26. What document is crucial in CIF contracts?
A. Waybill
B. Insurance certificate
C. Export license
D. Delivery note
Correct: B

27. Which Incoterm applies only to non-container sea shipments?
A. CIP
B. FOB
C. FCA
D. DPU
Correct: B

28. In EXW, who bears the cost of loading the goods at the seller’s premises?
A. Seller
B. Buyer
C. Split equally
D. Freight forwarder
Correct: B

29. Under which Incoterm is the seller obligated to assist in obtaining a bill of lading if requested?
A. FCA (with onboard B/L clause)
B. EXW
C. DPU
D. DDP
Correct: A

30. Which Incoterm best suits e-commerce cross-border shipments?
A. FOB
B. DDP
C. CIP
D. EXW
Correct: B

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31. Under which Incoterm is the buyer responsible for export formalities?
A. EXW
B. CIF
C. CPT
D. CIP
Correct: A

32. Under which term does risk transfer before main carriage?
A. CIF
B. DAP
C. FCA
D. DDP
Correct: C

33. Which Incoterm requires the buyer to unload the goods at destination?
A. DPU
B. DAP
C. DDP
D. EXW
Correct: B

34. What does CIF stand for?
A. Carrier, Insurance & Freight
B. Cost, Insurance & Freight
C. Cost, Import & Freight
D. Cargo, Insurance & Freight
Correct: B

35. In DDP, which party handles customs clearance and taxes?
A. Seller
B. Buyer
C. Forwarder
D. Port authority
Correct: A

36. Which Incoterm puts minimum obligation on seller?
A. DPU
B. FCA
C. EXW
D. FOB
Correct: C

37. What is the key difference between DAP and DPU?
A. DAP includes unloading, DPU does not
B. DPU includes unloading, DAP does not
C. Both are the same
D. DAP includes customs clearance
Correct: B

38. Which Incoterm is suitable when delivery must be done inside buyer’s country and include tax and duty?
A. CIP
B. DDP
C. FOB
D. FAS
Correct: B

39. Under CPT, who contracts the carriage?
A. Buyer
B. Seller
C. Insurance company
D. Customs
Correct: B

40. Under CIF, when does the risk transfer to buyer?
A. At port of destination
B. After unloading
C. Once goods are on board ship
D. After customs clearance
Correct: C

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41. Which Incoterm obligates the seller to clear goods for export?
A. EXW
B. FCA
C. FOB
D. All except EXW
Correct: D

42. Which term offers the least obligation for the seller regarding transport?
A. CIP
B. DAP
C. EXW
D. DDP
Correct: C

43. Which Incoterm does NOT include insurance obligation for the seller?
A. CIP
B. CIF
C. CFR
D. None
Correct: C

44. What is required in CIP that is not in CPT?
A. Export clearance
B. Import duty
C. Insurance
D. Risk transfer
Correct: C

45. Which Incoterm is most suitable for bulk cargo shipped by sea?
A. FOB
B. CIP
C. DDP
D. FCA
Correct: A

46. What’s a disadvantage of using EXW for buyers?
A. Control over logistics
B. Cost transparency
C. Responsibility for all transport
D. Seller handles customs
Correct: C

47. In which Incoterm does the seller deliver when goods are placed at the disposal of the buyer, not loaded?
A. EXW
B. DPU
C. FCA
D. FOB
Correct: A

48. In CPT, does the seller bear the risk until the goods reach the buyer?
A. Yes
B. No
C. Only for air transport
D. Only if insured
Correct: B

49. Who is responsible for unloading in DPU?
A. Seller
B. Buyer
C. Carrier
D. Forwarder
Correct: A

50. What Incoterm is best when seller wants to control the entire delivery process?
A. CIF
B. EXW
C. DDP
D. FOB
Correct: C

More: 

MCQ on UCPDC 600  

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