Strait of Hormuz disruption threatens to shake global economy
In a Nutshell
A closure of the Strait of Hormuz, carrying 20% of global oil, threatens massive economic disruption, with Saudi Arabia's East-West pipeline enabling it to reroute 4 million barrels daily while Iraq, Kuwait, and Qatar shut in production. Russia gains from surging oil prices boosting Putin's revenues, China faces a "gut punch" as half its imports transit the strait, and India risks acute shortages of cooking fuel and other products. Prolonged shutdown guarantees global recession, with US gas prices up 65 cents/gallon, Asian fuel shortages, and 25% surges in jet/diesel costs.
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Worst case scenario is the Strait of Hormuz closed for weeks, impacting the global economy as it carries a fifth of the world's oil and significant natural gas. The longer the disruption, the greater the impact across industries and regions.
Strait of Hormuz is a narrow waterway on Iran's southern coast connecting oil-rich Persian Gulf countries to the world. Traffic nearly stopped by war in Iran, affecting energy markets and national economies. Matt Smith, oil market analyst for Kepler (tracks global trade and shipping), studies ship movement there. Region moves millions of barrels of oil daily. For most Gulf states, only way to global market is through the strait; supplies stuck due to conflict.
Saudi Arabia benefits from East-West pipeline built to bypass Strait of Hormuz choke point, routing to Red Sea at Yanbu. Exports picking up from there. Saudi Arabia can reroute crude, load in Red Sea; Iraq, Kuwait, Qatar cannot and must shut in production. Saudi Arabia can move nearly 4 million barrels a day, not all barrels.
Collapse of keystone assumption in economics and energy markets. If Hormuz shut for a month, bedrock assumption of global economy and security collapses.
Bob McNair, energy adviser to President George W. Bush during Iraq War, now advises on oil and gas markets. Disruption already has global impacts, including in Russia. Conflict and oil price increase help Putin: lifts crude oil price, eliminates discount penalty on Russian oil. > "Christmas came early for Putin."
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