The ongoing conflict between the U.S., Israel, and Iran over the Strait of Hormuz is sending shockwaves through global energy markets, and Vandana Hari, founder of Vanda Insights, warns that the markets are far from pricing in the full impact of a prolonged closure. The situation has escalated into a war of attrition, with Iran's threats and actions effectively closing the strait, and the U.S. considering military action to restore free passage.
The economic and human costs are mounting, and Hari predicts that the worst is yet to come. She dismisses the idea that Iran could selectively allow certain ships to pass, citing operational and insurance industry limitations. The insurance industry, in particular, is highly risk-averse, and even if Iran granted an exemption, ship owners and charterers would be reluctant to navigate the strait.
The impact of the strait closure is already being felt, with Brent crude prices soaring to near $120 per barrel. Hari estimates that the measures taken by Asian countries to mitigate the impact may only last a few days to a week. Beyond that, a prolonged closure of the strait could lead to catastrophic consequences, with global oil prices reaching $200 per barrel, according to Iran's IRGC.
The closure is not just about oil prices; it has a ripple effect on the global economy. Supply chain experts predict that the initial impact may take 10-14 days to become apparent, but the real pressure will hit within 2-5 weeks, as diverted containers arrive in clusters and terminal congestion rises. This could lead to shortages of essential goods, including packaging, automotive components, and consumer goods, as around 85% of polyethylene exports from the Middle East travel through the Strait of Hormuz.
Hari contrasts the current situation with previous crises, noting that the market's resilience has been tested in different ways. She emphasizes the need for diplomacy and a credible de-escalation signal to lower prices. Until that happens, she advises markets not to rely on past resilience, as the rules have changed, and the current situation is an exception.
