Bitcoin Will Rally If the Strait of Hormuz Gets Blocked or Disrupted Due to a War with Iran

January 8, 2020 / by Zachary Mashiach

A recent Crypto.IQ article predicted that if the conflict between Iran and the United States escalated any further, Bitcoin (BTC) and precious metals would rally while stocks would simultaneously weaken. That’s exactly what happened after the United States assassinated the top Iranian General, Qassam Suleimani, on Jan. 2. Bitcoin (BTC) has risen from $6,900 to $8,000 since then. Gold spiked to a six-year high of $1,590 an ounce, and the Dow Jones Industrial Average (DJIA) weakened a few hundred points.

This could be a small taste of what is to come, especially if the Strait of Hormuz is closed or disrupted due to a war between the United States and Iran.

The Strait of Hormuz is a narrow channel of water bordered on one side by Oman and the United Arab Emirates and on the other side by Iran. At its most narrow point the Strait of Hormuz is only 25 miles wide.

The problem is that 35% of all seaborne oil is shipped through the Strait of Hormuz — more than 20 million barrels of oil per day. This is because most of the oil produced in the Persian Gulf region must be shipped via tankers through the Strait of Hormuz in order to reach the rest of the world. Major oil producers that at least partially depend on the Strait of Hormuz include Iraq, Iran, Kuwait, Saudi Arabia, Qatar, and the United Arab Emirates.

Since the Strait of Hormuz is so narrow, the oil tankers moving through the strait could easily be destroyed, seized, or blocked in the event of a war. Indeed, we saw this in June 2019 when two oil tankers were attacked in the Strait of Hormuz and in September when Iran seized a tanker.

In order to defend the Strait of Hormuz, the United States has positioned the nuclear aircraft carrier Harry S. Truman close to the strait in addition to many other ships, and the British Royal Navy has also announced its intent to escort tankers through the strait last week.

However, the bulk of the Iranian navy is in proximity to the Strait of Hormuz as well, and if a war breaks out, the strait would inevitably be blockaded or severely disrupted.

Capital Economics projects that, if the Strait of Hormuz is disrupted or blocked, the price of oil would surge to $150 a barrel. The economies of Persian Gulf nations would experience the most severe crash since those countries depend on oil revenues, but the stock market across the rest of the world would crash as well.

This is because oil and its derivatives, such as gas and plastic, are essential for the global economy. Gas prices would skyrocket worldwide if the Strait of Hormuz is closed, draining the pockets of every person who commutes to work. People who own cars would be directly affected, but even people who take trains, buses, and planes will face increased transportation costs.

Increased transportation costs lead to less consumer spending in other sectors of the economy, decreasing corporate profits, which ultimately causes stocks to decline. Further, the cost of manufacturing and shipping goods would skyrocket, decreasing manufacturing and consumer spending even further.

Aside from the fundamental effects of oil prices skyrocketing due to a theoretical closure of the Strait of Hormuz, there would be panic on the markets, causing stocks to drop even before the economic impacts of skyrocketing oil prices are truly felt.

Further, oil infrastructure in the Persian Gulf region could be badly damaged if an all-out war breaks out, which could limit global oil supply for years. Basically, even if the Strait of Hormuz is re-opened relatively quickly, there would likely be much less oil flowing through it.

If the Strait of Hormuz is closed due to a war breaking out, Bitcoin (BTC) would likely rally. The Bitcoin (BTC) price increase after the assassination of General Suleimani is a small taste of what would happen if the Strait of Hormuz is closed. Stocks would weaken due to skyrocketing oil, transporting, and manufacturing costs combined with fear, while Bitcoin (BTC) and precious metals would rally due to their utility as safe-haven assets. 

Because of these developments, crypto traders should continue to keep a close eye on the conflict between Iran and the United States. President Trump has declared that if even one more American is attacked, or any American assets in the region are attacked, a widespread United States airstrike would occur in Iran. With Iran vowing revenge and Iran’s long track record of persistent attacks in the region, it seems to be only a matter of time before this happens, at which point the Strait of Hormuz would likely be one of the first things that Iran attacks.

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