Watching The Strait Of Hormuz: Why It Matters

Bombs, Markets and Mortality: What the U.S Airstrikes on Iran Mean For You?

EXPOSE

Financial Fallout: Oil, Inflation & everyday Costs

In the age of everyday people becoming desensitized to the endless news coverage of warfare, the effect that this could have on the general global population should not be underestimated. Energy bills, food prices, or grocery receipts- you may not have felt the blast, but you might feel it in your pocket.

• Oil prices rose modestly (~1%) following the attacks, indicating investor caution. Fears of escalation are circulating, but the market seems to be waiting to see what happens next before pricing in risk tolerance – especially regarding the Strait of Hormuz.
• The Strait of Harmuz, a critical chokepoint off Iran’s coast, which sees over 20 million barrels (approximately 20% of the world’s oil supply) pass daily, is perilously close to causing global disruption. [Source: U.S Energy Information Administration]

The inevitable jump in oil prices, should we see the Strait of Hormuz compromised, affects far more than just petrol prices.

• Transportation and shipping: higher fuel prices =higher delivery, flight and personal travel costs.
• Manufacturing: oil features in almost every supply chain, from pharmaceuticals to textiles
• Plastics and packaging: petroleum derivatives are needed for plastic production, impacting everything from electronics to food containers
• Fertilizer and agriculture: could drive up food costs with the industry heavily reliant on petrochemicals.

In short, we could see the slowing of economic growth and higher prices for the consumer, leading to central banks introducing tighter policies. For the average person, this could translate to more expensive fuel, volatility in pensions linked to global markets, higher inflation, delays in interest rate cuts, and higher mortgage prices. Market reactions were cautious but evident of increasing panic, with defence stocks rallying and the tech sector dipping. Gold climbed, as investors relocated to safe-haven assets.

Why Does the Strait of Hormuz Matter So Much?

It’s a sea passage between Iran and Oman, measuring 21 miles wide, and is the sole route for oil exports from the middle-east to reach the global markets and supply chains. 1 in 5 barrels of oil consumed worldwide are produced in countries including Qatar, Bahrain, Kuwait, Iraq and the UAE – all of which require transit through the Strait of Hormuz. Iran has already threatened to blockade should the conflict escalate. [Source: Reuters]. While we wait to see their next move, it’s worth noting that even rumours can move markets.

More...