Kharg Island is a small island in the Persian Gulf.
It lies 16 miles off the northwest coast of Iran. It’s 451 miles from Tehran, Iran’s capital — roughly the distance from Detroit to New York City.
It is just five miles long, about 40% the size of New York’s Manhattan Island. And 125 from Iran’s border with Iraq.
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It is also unique in the Persian Gulf. The island’s limestone foundation allows it the luxury of fresh water reserves.
Most importantly it also is the key port that exports Iranian crude oil. About 90% of Iran’s oil exports flow through Kharg’s terminal complex. And about a third of those exports go to China.
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Kharg could prove to be one of two key strategic places if the Israeli-Iran War (let’s call it that for now) spins out of control.
The other is the Strait of Hormuz, 21 miles wide at its narrowest, same as the English Channel.
About a third of the world’s liquified natural gas and 25% of its crude oil must pass through the strait to pass from the 615-mile Persian Gulf to reach buyers in Europe, Asia and elsewhere.
Giant oil tankers with oil and natural gas from Iran, Iraq, Saudi Arabia, the United Arab Oman and Abu Dhabi, Qatar and Bahrain flow though the strait
Iran is the northern side of the strait, Oman on the southern. For years, whenever there’s a conflict involving Iran, there are fears the country might block the strait.
Two places critical to the global economy
The importance of Kharg and the Strait of Hormuz helps explain why crude oil prices shot up as much as 14% late Thursday on the very first reports of Israel’s attack on Iranian military and nuclear facilities.
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Ultimately, West Texas Intermediate, the benchmark U.S. crude closed Friday up 7% to $71.29, and Brent, the benchmark global crude, was up the same amount to $74.23.
If the worst of the conflict scenarios come to pass — Kharg’s terminals and the strait are shut down, all bets are off on oil prices and, by extension, natural gas and gasoline prices.
Kharg’s terminal were blown up during the Iraq-Iran War of 1980-1988.
If it happened again, Reuters reported, some analysts were suggesting crude prices could top $120 a barrel or higher, which would send gasoline prices much higher, maybe up to the top U.S. average price of $5.22 a gallon in May 2022.
Global economies would be disrupted, and inflation would almost certainly jump.
AAA’s daily U.S. average gasoline price was up a penny to $3.133 a gallon on Saturday. The price is up just 3.1% so far in 2025.
Tourists on a passenger boat with the Iranian flag in the Strait of Hormuz as an oil tanker passes by.
A boost for U.S. energy stocks
U.S. oil and gas stocks jumped on the Israeli-Iran news Friday.
The Energy Sector of the Standard & Poor’s 500 Index was alone among the 11 sectors of the index to post a gain for the day.
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The Energy Select Sector SPDR exchange-traded fund (XLE) , which matches the index’s Energy Sector, was up 1.7%. Oil services giant Halliburton (HAL) was up 5.5%. APA Corp. (APA) , parent of oil-and-gas producer Apache, was up 5.3%.
The S&P 500 was down 1.13%. The Dow Jones Industrial Average, down as many as 887 points in the afternoon, finished with a 700-point loss, or 1.8%, to 42,198.
The major stock indexes — Dow, S&P 500, Nasdaq Composite, Nasdaq-100 and Russell 2000 — all finished lower on the week.
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Will things go crazy?
That said, many analysts do not believe things will get that out of hand.
Similar worries about Kharg and the Strait of Hormuz have generated similar worries and price projections. But, in a note on Friday, Amarpreet Singh, an analyst with Barclay’s, said “cool heads have prevailed.”
Moreover, as Ian Bremmer, president of the Eurasia Group, a consulting firm that watches matters like these, thinks Iran has few cards to play in this conflict.
Israeli intelligence capabilities are just too capable, he said on a podcast, and Iran’s military capacity has been diminished substantially by the attacks this week.
Still, attention must be paid. Most definitely.
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