Energy and trade specialists are cautioning about a domino effect on worldwide supply networks that will escalate as the conflict between the U.S. and Israel with Iran continues and the Strait of Hormuz remains obstructed.
Currently, much attention is rightly on oil markets. Throughout the 12-day conflict so far, the closure of the strait has halted approximately 250 million barrels of oil from exiting the Persian Gulf and being distributed globally, leading to increased fuel prices globally. However, beyond oil, a significant impact is being felt.
Experts are warning that the global supply of vital metals such as copper, nickel, and cobalt originating from the Gulf could face disruptions. Nearly half of the global urea supply, a widely used fertilizer, also originates from this region.
Jim Krane, the Wallace S. Wilson Fellow for Energy Studies at Rice University in Houston, Texas, emphasized that the loss of access to the strait is causing a ripple effect across the global economy due to its critical role.
Notably, a major aluminum producer in Bahrain has invoked force majeure, suspending deliveries. Additionally, Qatar, a significant liquefied natural gas exporter, announced a cessation of production at its facilities, impacting its clients.
Even if the Strait of Hormuz were to reopen immediately, it would take months to resolve the ongoing issues affecting various industries. Jeff Currie, CEO of investment firm Carlyle Group, highlighted that the disruption extends beyond oil to gas, fertilizer, metals, and petrochemicals, requiring a lengthy period to rectify the damages.
In South Korea, concerns have been raised by chip makers regarding potential disruptions in semiconductor production due to the conflict’s impact on the supply chain of key materials like helium.
The current shortage of oil and gas has already driven up costs, but experts warn that the full implications of a prolonged closure of the Strait of Hormuz have not been fully factored into current prices. Ongoing disruptions are expected to further increase prices in affluent nations and result in shortages in poorer countries.
In response to the crisis, efforts for a co-ordinated release of oil reserves have been initiated globally. However, the U.S. Energy Secretary has mentioned that deploying American reserves would take approximately 120 days to address the growing supply gap.
The uncertainty surrounding the resolution of the conflict poses a significant challenge, with every passing hour heightening the risk of exacerbating supply-chain issues. The resumption of normal traffic flow through the strait is crucial to prevent the oil market from adversely impacting the global economy.