Energy and trade specialists are cautioning about a domino effect on worldwide supply chains that will escalate as the U.S.-Israel conflict with Iran continues and the Strait of Hormuz remains inaccessible.
While the primary focus is on the oil sector at present, the closure of the strait during the 12-day-long conflict has restrained approximately 250 million barrels of oil from leaving the Persian Gulf for global distribution, resulting in increased fuel costs globally. However, the impact extends beyond just oil.
Experts are indicating a potential disruption in the supply of essential metals such as copper, nickel, and cobalt sourced from the Gulf region. Additionally, nearly half of the global urea supply, a widely used fertilizer, originates from this area.
Jim Krane, the Wallace S. Wilson Fellow for Energy Studies at Rice University in Houston, Texas, emphasized the critical role of the region in the global economy, highlighting the far-reaching effects of losing access to the strait.
The conflict has already prompted a key aluminum producer in Bahrain to declare force majeure, suspending deliveries as a result. Qatar, a major liquefied natural gas exporter, announced a production halt at its facilities, citing delivery challenges.
Even if the Strait of Hormuz were to reopen immediately, resolving the repercussions would take several months. Jeff Currie, CEO of investment firm Carlyle Group, stressed the disruption to various sectors beyond oil, including gas, fertilizer, metals, and petrochemicals, underscoring the time needed to address the damages.
Reports from South Korea indicate concerns among chip manufacturers regarding potential semiconductor production disruptions due to the conflict in the Middle East. Helium, a crucial material used in production processes, is among the key resources at risk.
In the short term, the shortage of oil and gas has inflated costs. However, experts warn that prolonged closure of the strait could lead to severe repercussions, with higher prices impacting wealthier nations and causing shortages in developing countries.
Efforts to coordinate the release of oil reserves globally may offer some relief, although the process is time-consuming. The uncertainty surrounding the conflict’s resolution poses ongoing risks to supply chains, warranting attention to prevent further escalation of challenges.
