Starting a big war in the Middle East is much easier than stopping it. This is the lesson President Trump is now learning.
After one month of dropping bombs and launching missiles at Iran, Trump has called for a time out. A proposed one-month ceasefire. He even put a 15-point peace plan on the table. It was delivered via intermediaries in Pakistan.
The proposal included a comprehensive off-ramp to address everything from nuclear disarmament and missile limits to reopening the Strait of Hormuz. Tehran quickly put a match to it and countered with five conditions of its own – including demands for reparations.
It was but one month ago when Operation Epic Fury kicked off. What was intended to be a brief operation of destruction rained down on Iran, turned into something much greater.
The initial shock and awe adeptly targeted high-level leadership and missile infrastructure. But the operation quickly spiraled into a larger war of attrition that physically severed the world’s most vital energy artery – the Strait of Hormuz.
The initial success was overshadowed by a grim, structural reality. Market volatility is one thing. Physical depletion of global resource reserves, which puts a big squeeze on every major economy, is entirely another.
Perhaps some limited shipping will be allowed to traverse the Strait as the war rages on. One can only hope. Because if it remains closed for another 30 days, the emergency oil and gas reserves held by nations like Japan and Germany will stop flowing. In fact, hundreds of gas stations have alreadyrun dry across Australia.
One more month of this will have dramatic consequences. Namely, it will result in the forced deindustrialization of energy-dependent economies as critical links in the world’s just-in-time supply chain breakdown.
When shipping containers stack up in idle ports and fertilizer plants go dark, the survival of economies across the globe are at risk.
Physical Shortages
Month one, by and large, was nothing. The impacts to the average person were mainly limited to sticker shock at the gas pump. Brent crude briefly spiked above $120 a barrel, and everyone’s 401(k) took a modest nosedive.
Month two, however, is when things really start to get serious. That’s when higher prices are met with physical shortages. The next 30 days are the real make or break moment for the global economy.
In March, the world survived on oil and gas that was already in the pipes and the tanks. The U.S. and its allies tapped into strategic reserves to help buffer the price spikes. But those reserves are a very short-term solution.
Around 20 percent of the world’s Liquefied Natural Gas (LNG) is currently trapped behind the Strait. QatarEnergy, the world’s LNG heavyweight, has had to declare force majeure on exports.
Most major industrial centers in Europe and Asia keep about 30 to 45 days of gas in easily accessible storage. If the Strait doesn’t open by mid-April, we aren’t just talking about higher gas prices and heating bills. We’re talking about mandatory industrial shutdowns. If you can’t power the factory, you can’t make the product.
Similarly, if you can’t supply fertilizer, you can’t grow food. In addition to being one of the world’s top suppliers of oil and gas, the Persian Gulf is also one of the world’s top suppliers of agricultural fertilizers. What’s more, fertilizer shortages couldn’t have come at a worse time.
It’s spring planting season in the northern hemisphere. Farmers in the U.S. Midwest, Brazil, and India are looking at prices of nitrogen fertilizers that are 30 percent to 50 percent more expensive than they were four weeks ago. And that’s if they can find them at all.
If supply constraints persist through April, farmers will simply plant less or conserve fertilizer. That means lower crop yields this fall. Moreover, it means there will be a global food security emergency that will peak in about six months.
Energy Holidays and Empty Shelves
You may have also heard of looming helium shortages. Most of the world’s helium, which is essential for cooling the machines that make high-end AI chips, comes from Qatar.
High-end semiconductor fabricators in Taiwan and Arizona have about a three-month buffer of these specialty gases. One month’s supply is already gone. If we lose another, there could be a shortage of chips that power everything from your phone to the newest AI models.
If the Keep Out signs stay up at the Strait through April, there could be several disagreeable consequences. For example, there will be energy holidays (i.e., forced rationing) in energy-hungry nations. Factories that make cars, plastics, and chemicals will go dark to conserve power for hospitals and homes.
Shipping companies will also avoid the Persian Gulf. This will add an additional 15-day detour around Africa for goods being shipped from Asia to Europe. The additional transport time will add costs to imported goods.
Many economies were already stalling out before the attacks on Iran. But now, if 20 percent of the world’s oil remains offline through May, it’s a near certainty that major economies like Germany, Japan, and China – and the USA – will slip into a recession.
In short, month one was merely a siren. Month two is the start of the actual physical impact. Specifically, the global economy will move from higher costs to shortages.
A world where shortages of everything from medical instruments to basic consumer electronics and manufacturing components, and essentials like gasoline and fresh fruits and vegetables, could soon be the reality.
The buffer period provided by global strategic reserves is disappearing with each passing day. While the first 30 days stimulated a chaotic news cycle and wild market swings. The next 30 days will stimulate a structural shift in how people live.
So, without reservation, hard times are coming to a town near you.
The just-in-time world was not built for a sustained severance of its primary jugular. When the oil and gas stops flowing, the helium stops cooling the fabrication machines in Taiwan, and the nitrogen stops hitting the soil in the Midwest, the convenience and abundance of modern life break down. So, too, does the debt and the credit edifice that sustains it.
