The Strategic Geography
The Strait of Hormuz is the world’s most critical oil chokepoint — approximately 40 kilometres wide at its narrowest point between Oman’s Musandam Peninsula and Iran. Through it passes:
- Approximately 20-21 million barrels of oil per day (~20% of global oil trade)
- Approximately 20% of global LNG trade
- Significant container shipping between Gulf states and global markets
Oman controls the southern shore of the Strait and the Musandam Peninsula — a geographically separate exclave from mainland Oman, north of the UAE. Iranian forces control the northern shore and the islands of Abu Musa and the Tunbs (disputed with UAE).
Oman’s Exposure
Oil export route: PDO’s crude exports primarily transit the Hormuz Strait from loading terminals at Mina al-Fahal and Ras Markaz. If the Strait closes, Oman’s oil export revenues are directly impacted.
LNG export route: Oman LNG’s Qalhat facility ships LNG through the Strait.
Import dependency: Oman imports significant food, consumer goods, and capital equipment — primarily through Hormuz-adjacent ports.
Mitigation: Duqm and Salalah Outside the Strait
Oman’s strategic investment in Duqm SEZ and Port of Salalah — both located on the Arabian Sea coast, outside the Strait of Hormuz — is partly motivated by reducing Hormuz dependency:
- Duqm Refinery: Receives crude by pipeline (under development) and processes it south of the Strait — refinery and port are outside Hormuz closure risk
- Port of Salalah: Operates on the Indian Ocean, with no Hormuz transit required for transhipment operations
- Green hydrogen export: Planned green ammonia exports from Duqm would transit the Arabian Sea rather than the Strait
Investment Implications
For investors, Hormuz risk is a tail risk rather than a base case — it is low probability but extremely high impact. The risk premium it justifies depends on:
- Probability assessment of Hormuz closure (Iran has threatened but not executed closure)
- Duration of any closure before alternative routes activated
- Oil price response (Hormuz closure would dramatically increase global oil prices, benefiting Oman’s revenues even while closing export routes)
The OQEP and other Omani energy equity carry Hormuz risk as a structural factor. Duqm-located assets (Duqm Refinery, green hydrogen) carry reduced Hormuz exposure.