Global economy braces ...
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Beyond oil, the availability of chemical fertilizers is also a growing worry. If not passed through the Strait of Hormuz, their absence would potentially have irreversible damage, given that it is now the planting season in the Northern Hemisphere, and fertilizers are urgently needed. It’s not just the price of fertilizer that’s the issue; there are no significant reserves along the supply chain. Any disruption in the next month could impact the global food basket for a year.
The question is when these effects will manifest in monetary policy. Financial markets, particularly New York, which ended last year on a relatively positive note despite its ups and downs, have priced in expectations of interest rate cuts in 2026. If central banks become convinced that the current inflation is not transitory and must react through monetary policy, the narrative of rate cuts next year will no longer hold. When financial markets begin to plummet, a financial crisis different from that of 2008 could unfold. Reaching this point does not necessarily require oil to hit $110 or $130 a barrel; sustained high prices – around $85 and above – are sufficient. Prices are now fluctuating within this range, and the market is increasingly convinced this is the likely scenario.
The initial lack of a price surge following disruptions to passage through the Strait of Hormuz was predicated on the assumption that Iran would quickly concede. However, as it became clear this was not the case and Iran’s retaliatory power remained intact, the narrative of a prolonged situation has gained traction.
The opposing side’s tools are also apparent, and this is a two-way game. One such tool is the release of strategic oil reserves, a decision that has already been made. However, this tool has its limitations. The total reserves – depending on the definition and details – might only cover 20 to 30 days of global consumption, potentially offsetting the loss of around 12 to 20 million barrels per day.
Given this, everyone is waiting, and the clock is ticking. Two scenarios are playing out: whether the oil in the refining chain will be depleted before transit through the Strait of Hormuz returns to normal. There is currently no definitive answer, but the market is increasingly convinced that the strait will not be fully operational again anytime soon.