Rick Andrade as published at CEO World Magazine
A quick note if you use gasoline, oil, fertilizer, tires, or anything plastic, the roughly 20 million barrels of crude oil that normally squeeze through the Strait of Hormuz each day (20% of global oil) along with 20% natural gas may come knocking on your wallet or P&L this month.
So pay close attention.
Since President Trump gave the nod to strike Iran on Feb. 28th, the country has retaliated.
Among its responses are serious drone attacks and missile strikes that have rattled and shocked regional neighbors, including Kuwait, Bahrain, Saudi Arabia, Oman, the UAE, Qatar, Jordan, Syria and of course, Israel.
The result is a de facto blockade of the strait halting tanker traffic volume to near zero, and idling more than 250 tankers, 5x the normal throughput, costing us all billions!
Why?
Iran wants to disrupt global energy supply, drive oil prices sharply higher, and push energy costs toward a breaking point for American consumers and key U.S. allies, hoping to force Trump to back down. And it just might work.
In normal times, roughly 20% of global oil and a fifth of global liquefied natural gas (LNG) flows through the Strait of Hormuz. With traffic now stuck, billions in trade sit idle, tightening the noose around the neck of global economic markets.
In the US, the impact is most acute at the pump.
For every one‑dollar increase in a barrel of oil, U.S. gasoline prices increase by two to three cents per gallon.
West Texas Intermediate (WTI) which currently tops 80 dollars per barrel, up from the low 60s just two months ago, could easily lift gas prices between 50 to 70 cents/gal or more every day the strait remains closed.
But the pain is far from evenly distributed.
China, the world’s biggest manufacturer, relies heavily on Gulf crude: close to 40% of its oil imports come from the Persian Gulf.
That makes Hormuz a petrochemical maelstrom for China, and it is sure to be l’ordre du jour when Trump sits with Chinese Premier Xi later this month.
Meanwhile, India finds itself in the same boat, sourcing roughly 40% of its crude from the Gulf. And for Japan and South Korea the situation is even worse. These countries import 75% to 90% of their oil from this region. For these economies, Hormuz isn’t just a risk factor; it’s a total economic catastrophe in the making!
But it’s not just about burning crude for energy.
Did you know that 50% of global oil is not burned directly as fuel for transportation and power?
Rather, it’s used to feed petrochemicals, plastics, and rubber production for products made and sold worldwide.
So, while spiking gas prices make headlines, the ripple effects show up in places most people never hear about until they see higher price tags (aka inflation).
These ripples are already popping up as evidenced by increasing input costs reflected in the recent January pop in the Producer Price Index (PPI) data.
If you then layer on the costs of higher tariffs, the stage is set for higher inflation which feeds straight into consumer cost‑of‑living angst.
A closer look at where higher WTI prices will show up on your radar includes:
- Airlines (jet fuel, insurance, and route‑change costs)
- Transportation (rail, trucking, shipping)
- Autos (energy, rubber, plastics, metals, logistics)
- Cruise lines (fuel, supply inputs)
- Naphtha‑based petrochemicals and plastics
- Agricultural fertilizers
- Industrial manufacturing
- Electronics manufacturing – most notably in China, India, and South Korea
My point is “Strait” forward.
The Strait of Hormuz isn’t just a distant waterway on a Middle East map, folks; it’s a critical artery that feeds global energy demand and is the petrochemical lifeblood to the world’s largest economies.
As long as tankers are stalled in between, risk premiums and prices will stay elevated. And that translates to higher energy prices, tighter margins, and renewed inflation, or worse a global recession.
So stay on your toes, stay informed, and plan ahead, if you can. And let’s all hope the Spice flows again soon, before the Dune gets even worse.
Rick