Tensions in the Strait of Hormuz and Expanded Sanctions on Iran: An Analysis of Risks to Asian Energy Security

Executive Summary

Following the U.S.-Israeli airstrikes on Iran in February 2026, the Strait of Hormuz has been under a de facto blockade. Iran shifted to an offensive posture after the Islamabad Memorandum expired on August 17. The United States has announced new sanctions on Iran for August 24, but enforcement is likely to be selective and phased, as China has little incentive to abandon its position as the buyer of over 80% of Iranian crude. Oil prices are expected to remain fixed in a range of $88–$95 per barrel amid alternating periods of negotiation and tension. While Iran’s unilateral transit system has become the de facto standard route, its unstable legal status creates a persistent risk of abrupt shipping disruptions. The primary pressure on South Korean companies will likely stem not from the sanctions themselves, but from the potential for U.S. demands for sanctions compliance and military contributions in the Strait of Hormuz to be linked. This calls for a strategy of addressing these issues separately and refraining from preemptive declarations of compliance. In the short term, companies should review transactions via the UAE for sanctions violations and increase spot market procurement. In the medium term, this should be paired with diversifying supply sources to include Saudi Arabia, the UAE, and the United States.

I. Situational Analysis

Tensions in the Strait of Hormuz and Expanded Sanctions on Iran: A Situational Analysis

1. Background and Developments

The current crisis began on February 28, 2026, when the United States and Israel launched airstrikes against targets inside Iran, triggering a full-scale conflict in the Middle East [8][10]. Since the war began, the Strait of Hormuz has been under a de facto blockade [8][12]. Before the conflict, this shipping lane carried roughly one-fifth of the world's crude oil supply [8][10][12]. According to the PIIE, an average of 88 commercial vessels passed through the strait daily [3].

On June 17, President Trump and the Tehran government signed a memorandum of understanding known as the ‘Islamabad Memorandum’ [5][6], which stipulated an immediate and permanent cessation of military actions on all fronts. Immediately after signing, President Trump posted on social media, “Ships of the world, turn on your engines” [10]. However, like two previous ceasefire agreements in April and June, this memorandum did not last [15]. Amid continued attacks in the strait, the memorandum expired on August 17, prompting Iran to shift to a fully offensive posture [10].

2. Current Situation

On August 18, immediately after the memorandum’s expiration, President Trump and the Tehran government issued directly conflicting claims regarding transit through the strait. President Trump stated that no talks with Iran were ongoing or planned and insisted that the Strait of Hormuz was open [13][14]. In contrast, a senior Iranian official told Reuters that the strait remained closed [13]. This factual dispute over the strait’s status is itself acting as a risk premium driving up oil prices [2].

On August 19, President Trump declared via social media that he would impose “economic warfare and isolation of a magnitude never before seen” on Iran [8]. He justified this measure by citing Iran’s refusal to negotiate, claiming, “No one has ever given the Islamic Republic of Iran more of a chance to negotiate than I have” [8]. Also on August 19, he warned that any country providing a “lifeline” to Iran would face economic consequences [15], a statement interpreted as targeting China and India [4]. Treasury Secretary Scott Bessent had also announced “never before seen” pressure measures against Iran [4].

Iran’s Foreign Ministry pushed back, describing the impending U.S. sanctions announcement as “an assertion of extraterritorial sovereignty over all independent member states of the United Nations” [9]. On August 20, Iran publicly condemned the U.S. sanctions plan [16][17]. With its economy already under significant pressure from existing sanctions, some Iranian officials are calling for a diplomatic solution [7]. However, six months into the conflict, both sides have maintained a stalemate, refraining from armed clashes while also not pursuing peace negotiations [1][9][11]. The U.S. Navy is responding by reducing the number of transiting vessels, while Iran is exercising control by threatening to attack tankers that attempt unauthorized passage [7].

3. Key Actors and Positions

United States (Trump Administration): The move strongly resembles an exit strategy stemming from the failure of the six-month military operation to achieve its goal of forcing the Iranian regime to capitulate [8]. Treasury Secretary Bessent is demanding that allies and China comply with a binary choice: “You are either with us or against us” [8]. While keeping oil prices low is a top priority for the economic war against Iran, President Trump’s domestic political position is constrained by a lack of public support for the military operation [8].

Iran: Has shifted to a fully offensive posture since the expiration of the Islamabad Memorandum [10]. It is framing the new U.S. sanctions as a violation of sovereignty to build a case under international law, while simultaneously demonstrating its effective control over the strait by threatening to attack vessels attempting unauthorized passage [7][17]. However, with its economy already hit hard by existing sanctions, there are signs that some officials recognize the need for a diplomatic solution [7].

China: As the largest buyer, absorbing over 80% of Iranian crude oil, China is likely to opt for a pragmatic response by rerouting its oil imports rather than openly confronting the U.S. [8]. As a stakeholder whose own oil imports depend heavily on transit through Hormuz, China is also maintaining a cautious approach to a strategic alignment with Iran [12]. China has also been passive regarding Iran’s request to expand payments in yuan, citing its lack of the necessary conditions for a reserve currency, such as open capital markets and bond market liquidity [12].

Oman: Has served as the sole mediation channel between the United States and Iran in the Gulf region. An agreement between Iran and Oman to share control over transit rights was reportedly close at the working level, but President Trump’s threat to bomb Oman has emerged as a variable that could destabilize the channel itself [8][12].

4. Key Issues

First, the United States and Iran do not even agree on the basic facts regarding whether the strait is open for transit. The dynamic of President Trump claiming the strait is open while Iran insists it is closed is imposing a direct uncertainty premium on oil prices [13][14].

Second is whether the new U.S. sanctions will substantively target China. Given China’s structural position as the largest importer of Iranian crude, the effectiveness of the sanctions depends on its compliance. However, if China opts for circumvention rather than direct confrontation, the sanctions’ impact could be limited [8].

Third is the question of whether the Omani mediation channel will survive. If this channel is destabilized, the existing cycle of negotiation and tension could break down, risking a shift to a more unpredictable phase [8][12].

Fourth is the possibility of secondary pressure on countries dependent on oil imports, including South Korea. If the United States applies a binary framework demanding that its allies also join the sanctions, the issue could extend beyond simple energy supply and become linked to diplomatic and security matters [8].

II. In-Depth Analysis

Tensions in the Strait of Hormuz and Expanded Sanctions on Iran: An In-Depth Analysis

1. Analysis of Root Causes

The root cause of the current situation lies in the failure of the February 2026 U.S.-Israeli airstrikes on Iran to achieve their original political objectives. Despite a six-month military campaign, the Iranian regime did not collapse [8]. The Trump administration now finds itself needing to conclude with economic measures a war it could not win by military means. President Trump’s August 19 statement about “economic warfare and isolation of a magnitude never before seen” reveals the nature of this exit strategy [8]. With military pressure having reached its limits, the front has shifted to the tool of sanctions.

From Iran’s perspective, blockading the Strait of Hormuz is virtually its only leverage for maintaining negotiating power. Iran’s shift to a fully offensive posture after the Islamabad Memorandum expired on August 17 signals its unwillingness to give up this leverage [10]. Lacking absolute military superiority, threatening to attack tankers attempting unauthorized passage is nearly the only coercive tool Iran can employ [1][7][9][11]. The Iranian Foreign Ministry’s characterization of the U.S. sanctions announcement as “an assertion of extraterritorial sovereignty over all independent member states of the United Nations” [9] stems from the view that these sanctions infringe not only on Iran’s economy but also on the sovereign choices of third countries that do business with Iran.

Another dimension of the root cause is that both countries are engaged in a war of attrition, with neither possessing a decisive means to force the other to capitulate. This explains why the six-month stalemate—refraining from armed conflict but not pursuing peace negotiations—persists [1][9][11].

2. Structural Context

Security Structure: The Strait of Hormuz is one of the world’s largest maritime chokepoints, with an average of 88 commercial vessels passing through it daily [3]. Before the war, about one-fifth of the global crude oil supply transited the strait [8][10][12]. This geography gives Iran asymmetric bargaining power. Although inferior to the United States in conventional warfare, Iran’s ability to control the narrow strait allows it to send shockwaves through the entire global energy market. The U.S. Navy’s response of reducing the number of transiting vessels [7] also shows that fully reopening the strait is a difficult task, even militarily.

Economic Structure: The Iranian economy, already under significant pressure from existing sanctions, now faces further isolation measures [7]. Nevertheless, Iran has not capitulated because it has an alternative market in China. As the largest buyer, importing over 80% of Iranian crude, China is effectively refusing U.S. demands to join the sanctions. This means the U.S. economic war against Iran has expanded from a bilateral game into a triangular dynamic that also targets China’s crude oil import routes and payment networks [4]. President Trump’s warning of economic consequences for any country providing a “lifeline” to Iran [15] was a statement aimed squarely at this triangular structure.

Political Structure: Within the United States, the military operation has failed to gain public support [8]. For the Trump administration, which must end a six-month war without a clear victory, there is a political incentive to use the visible measure of sanctions to create a domestic narrative of having “forced Iran to capitulate.” The “never before seen” pressure measures announced by Treasury Secretary Bessent are linked to this domestic political need [4]. Conversely, within Iran, hardliners constrain policy decisions, making a flexible compromise at the regime level difficult despite calls from some officials for a diplomatic solution [7].

3. Historical Precedents and Comparison with Similar Cases

The closest precedent to the current situation is the 2019 phase when the U.S. fully implemented sanctions on Iranian crude oil exports. At that time, the U.S. also declared it would not grant exceptions to importers of Iranian crude, but China continued its imports by circumventing the sanctions. The assessment that China is “likely to reroute its oil imports without open confrontation” in the current phase [8] suggests a possible repeat of this 2019 pattern. The difference this time is that the Strait of Hormuz itself is physically blockaded, creating the dual challenge of not just circumventing sanctions but also securing the transit route itself.

The signing and collapse of the Islamabad Memorandum repeated the pattern of the two ceasefire agreements that collapsed in April and June [15]. The failure of this third agreement upon its expiration on August 17 reaffirmed the structural nature of the conflict, which is difficult to resolve with one-off deals. The repeated clash between President Trump’s announcement after signing the memorandum to “Ships of the world, turn on your engines” [10] and Iran’s subsequent rebuttal that the strait remained closed [13] shows a structurally recurring pattern in this conflict: a gap between declarations of resumed transit and actual passage.

4. Key Variables Shaping the Issue’s Development

The first variable is China’s response. If China avoids openly confronting the U.S.’s binary demands and instead reroutes its crude oil imports [8], the U.S. sanctions may end up as a symbolic measure with little practical effect. Conversely, if the United States extends secondary sanctions to Chinese financial institutions, the repercussions could spread beyond the Gulf region to global financial markets.

The second variable is the survival of the Omani mediation channel. Oman has served as the only mediator trusted by both Iran and the United States. If this channel is destabilized, the existing cycle of negotiation and tension itself is at risk of collapse.

The third variable is the legal status of Iran’s unilateral transit system. Although this system is solidifying into a de facto standard route, it is a temporary measure without legitimacy under international law, which entails a latent instability that could lead to an abrupt halt in shipping.

Finally, U.S. domestic public opinion and economic indicators are variables. With low support for the military operation [8], if rising oil prices due to sanctions put pressure on U.S. domestic inflation and Treasury yields, the Trump administration’s ability to maintain its hardline stance could be constrained.