Energy and trade specialists are cautioning about a domino effect on worldwide supply networks that will intensify as the conflict between the U.S. and Israel with Iran continues and the Strait of Hormuz remains obstructed.
While much attention is on oil markets currently, the closure of the strait during the 12-day conflict has prevented approximately 250 million barrels of oil from departing the Persian Gulf for global destinations, leading to increased fuel costs globally. However, the impact extends beyond oil.
There are concerns about potential disruptions to the supply of crucial metals such as copper, nickel, and cobalt from the Gulf region, according to Jim Krane, the Wallace S. Wilson Fellow for Energy Studies at Rice University in Houston, Texas.
Nearly half of the world’s urea supply, a widely used fertilizer, also originates from the region. Krane emphasized that the strait’s closure is causing ripple effects across the global economy due to its significance as a vital hub.
One major aluminum producer in Bahrain has already invoked force majeure, suspending its deliveries to meet contractual obligations. Additionally, Qatar, a significant exporter of liquefied natural gas, announced a halt in production at its facilities and informed clients of delivery disruptions.
Even if the Strait of Hormuz were to reopen immediately, it would take several months to resolve the ongoing issues affecting various industries. Jeff Currie, CEO of investment firm Carlyle Group, highlighted the extensive disruption to global supply chains encompassing oil, gas, fertilizers, metals, and petrochemicals. The repercussions, including misplaced ships and canceled insurances, are expected to persist for months.
In a separate development, chip manufacturers in South Korea have raised concerns that the conflict could impact semiconductor production, particularly if key materials like helium sourced from the Middle East become unavailable.
South Korea, a significant player in the chip industry, provides over 30% of global semiconductor production. Helium, essential for cooling equipment during production, is produced for export by only a few countries, including Qatar.
Experts warn that while the current oil and gas shortage has pushed up costs, the full extent of prolonged closure of the Strait of Hormuz is not yet factored into these price increases. The ongoing disruption is anticipated to lead to higher prices in affluent nations and potential shortages in poorer countries.
According to energy analyst Rory Johnston, the situation is already resulting in acute shortages in countries like Pakistan and Bangladesh, potentially leading to power outages. The coordinated release of oil reserves globally may alleviate some pressure, but significant challenges remain until normal traffic flow through the strait is restored.
The uncertain end of the conflict poses a continuous risk of exacerbating supply chain issues. The lack of clarity on the resolution prolongs the threats to global supply networks, emphasizing the urgency for a peaceful resolution to prevent further economic disruptions.
