Energy and trade specialists are cautioning about a ripple effect on worldwide supply chains that will escalate as the U.S.-Israeli conflict with Iran persists and the Strait of Hormuz remains obstructed.
The primary focus currently revolves around oil markets. Throughout the ongoing 12 days of the conflict, the closure of the strait has impeded approximately 250 million barrels of oil from exiting the Persian Gulf and being distributed globally, leading to increased fuel prices worldwide. Beyond oil, there are additional commodities being withheld.
Experts are advising preparations for potential disruptions in the supply of essential metals such as copper, nickel, and cobalt from the Gulf region. Nearly half of the global urea supply, a widely used fertilizer, also originates from this area.
According to Jim Krane, the Wallace S. Wilson Fellow for Energy Studies at Rice University in Houston, Texas, the Gulf region plays a crucial role in the global economy, and the closure of the strait is causing cascading effects across various industries.
One significant aluminum producer in Bahrain has already invoked force majeure, releasing it from contractual obligations and halting deliveries. Similarly, Qatar, a major liquefied natural gas exporter, has suspended production at its facilities and informed clients about delivery delays.
The impact of the conflict on global supply chains is anticipated to persist even if the Strait of Hormuz were to reopen immediately. Resolving the issues resulting from disruptions in supply chains is expected to take several months.
Jeff Currie, CEO of the investment firm Carlyle Group, emphasized that the repercussions extend beyond oil to gas, fertilizer, metals, and petrochemicals, requiring considerable time to rectify.
Reports suggest that the conflict could disrupt semiconductor production in South Korea, a key player in the chip industry, due to potential material sourcing challenges from the Middle East. Helium, essential for cooling equipment during production, is cited as one of the critical materials at risk.
The current oil and gas scarcity has already inflated costs, and experts warn that these elevated prices do not fully account for prolonged closure of the Strait of Hormuz. Continued disruptions are projected to drive prices up in affluent nations and lead to shortages in developing countries.
Krane noted acute shortages in countries like Pakistan and Bangladesh, which could result in power outages. Efforts for a coordinated release of oil reserves are underway but are limited in mitigating the supply chain disruptions.
The uncertainty surrounding the conflict’s resolution poses ongoing risks to exacerbating supply chain challenges. The imperative for the normal flow of traffic through the strait to resume is highlighted to prevent detrimental effects on the global economy.