Geopolitical Tensions and the Cryptocurrency Market: Why Concerns Over the Strait of Hormuz Crisis Are Overhyped

There is a rapid spread of concern among crypto investors on X (formerly Twitter) about a market crash due to worsening Middle East tensions. However, it is likely that market players’ anxiety is exaggerated beyond the actual situation.

Recently, Israel and the U.S. carried out airstrikes against Iran. This sharply increased regional tensions and raised the possibility of full-scale conflict. This instability spilled over into the cryptocurrency market, which is often a refuge during traditional market closures. Bitcoin (BTC) plummeted from about $65,600 to $63,000, then rebounded and is trading near $65,000. Meanwhile, Hyperliquid’s oil-linked futures rose by over 5%.

However, the market turmoil at that time is believed to have been driven more by psychological factors than by actual economic impact.

The Basis for the Strait of Hormuz Blockade Theory and Market Concerns

The Strait of Hormuz is located north of Iran and south of Oman, with a narrowest width of only 21 miles. According to the U.S. Energy Information Administration (EIA), around 20 million barrels of oil pass through this strait daily in 2024, accounting for about 20% of global oil exports.

If the Strait of Hormuz were actually blocked, crude oil prices could surge from around $120 to $150, potentially triggering a global inflation shock. Crypto-related account “Crypto Diet” on X posted this view, suggesting that a direct conflict between the U.S. and Iran would not just be a geopolitical concern but could develop into a worldwide economic event. Many experts share this perspective.

Geopolitical strategist Verina Chakarova also issued similar warnings. Even before Iran’s attacks, oil prices had already reached their highest levels in six months. She emphasizes Iran’s significant influence as a founding member of OPEC and the fact that the critical shipping route through the Strait of Hormuz is now under direct geopolitical risk. Additionally, several trading companies are reportedly considering suspending oil and fuel shipments through the strait temporarily.

Will a Crash Scenario Really Happen? Calm Analysis

However, many experts argue that a complete blockade of the strait is unlikely. Daniel Ragaijel, Chief Economist at Trasis and PhD in Economics, describes Iran’s closure of the strait as “like shooting itself in the foot.”

Currently, Iran produces about 3.3 million barrels of oil daily, but exports only about half of that, mostly to its ally China. This means Iran’s own economic interests would be severely harmed by such a move.

It is also important to note that OPEC member countries can quickly offset supply disruptions. Meanwhile, the U.S. is currently the world’s largest oil producer. Even if crude prices spike temporarily, the increase and duration are likely to be manageable and short-lived.

Geographical Constraints: Iran’s Control of the Strait Is Technically Difficult

Another often overlooked factor is geography. The Strait of Hormuz is roughly centered between Iran and Oman, but most of the shipping route for large oil tankers is within Omani territorial waters.

Iranian waters are shallow, while Omani waters are deeper and suitable for large tankers. Technically, even if Iran unilaterally blocks its waters, oil transportation could continue via the Omani route.

Energy market expert Dr. Anas Alhajji commented on X, “Most of the route is on the Omani side, not Iran. Despite past wars, the Strait of Hormuz has never been fully closed. It’s too wide and heavily guarded.”

Full-Scale War Scenario Is More Concerning Than Complete Blockade

Overall, the likelihood of Iran intentionally blocking the Strait of Hormuz to cut off global oil supplies is very low.

However, if a full-scale military conflict erupts in the Middle East, the situation changes. Such a conflict would trigger widespread risk aversion, severely impacting the cryptocurrency market. Bitcoin could even break below the $60,000 support level.

Historically, Bitcoin’s price chart shows patterns that suggest a deepening bearish trend. If a serious military conflict occurs in the Middle East, it’s certain that risk assets, including cryptocurrencies, will face selling pressure. Currently, BTC is trading around $67,340, down 1.40% in the past 24 hours.

What Investors Should Consider

In conclusion, the scenario of Iran deliberately fully blocking the Strait of Hormuz, as feared by the crypto community, is overestimated by many experts. The economic damage from a disruption of oil supply is less impactful than the market’s psychological reaction to a full-scale geopolitical war.

Market participants should avoid succumbing to baseless fears and instead maintain a calm perspective, distinguishing between low-probability scenarios and real risks.