Just a couple weeks ago, most people, if asked to locate the Strait of Hormuz on a map, would not know where to place the mark. The outbreak of hostilities between the US and Israel on one hand, and Iran on the other, has brought this narrow passage between Iran and the Arabian Peninsula into sharp focus. Yet most people don’t have a full appreciation of how this situation will impact their daily lives.
Right off the bat there is the stock market impact. Last Friday, US President, Trump, gave three different and seemingly contradictory statements about the situation with Iran while stocks were trading; ending with a threat to bomb Iran’s energy infrastructure just as the markets closed.
That threat expired Sunday night and sure enough as the market opened on Monday there was an announcement that the energy infrastructure attack was halted for five days pending discussions. That timeline covers the trading week. The announcement on Monday morning resulted in a US$2 trillion increase in the market capitalisation of the S&P500. This is the extent of the stock market whiplash and volatility that results from his messaging.
The impact isn’t just on the stock market. Bond yields are moving higher and the last time it got to these levels, during the Trump tariff announcements, he pulled back on his proposed tariffs for 90 days allowing the markets to settle. In my opinion it is the bond market more than the oil market that will prove to be the bigger headache for the US President.
The United States Federal Reserve held its policy rate at 3.50 to 3.75 per cent at its March 18 meeting. Its statement acknowledged that “uncertainty is elevated” and that the implications of Middle East developments for the US economy remain unclear. That careful language reflects a policy dilemma that has no clean resolution.
The Fed’s median projections still show 2026 real GDP US growth of 2.4 per cent, unemployment at 4.4 per cent, and inflation at 2.7 per cent, implying roughly one rate cut this year. Those projections were prepared before the full scale of the current disruption was known, and they already represent a narrower path than the Fed was projecting six months ago. US real GDP grew at only 0.7 per cent annualised in the fourth quarter of 2025, February payrolls fell, and unemployment has risen to 4.4 per cent. The economy was already slowing before the current shock arrived.
This discussion isn’t just about inflation due to higher oil prices. That will increase the cost of gasoline for US consumers but higher long term interest rates also impact mortgage rates in the US, which means both housing and transportation will take a bigger bite out of the paycheck of the average American. This is not a comfortable position for the US.
To fully grasp the extent of what is taking place, it is necessary to understand just how important the Strait is to world trade and if it is blocked or targetted in any way the second order effects are significant. Let me explain.
The scope
It is estimated currently that 16 million barrels per day of crude oil and products stopped flowing through the Strait, an 80 per cent decline from the 2025 average. The Strait has not been formally declared closed under international law, but the practical outcome is identical: insurance withdrawal has created a de facto closure for most of the global shipping community.
Crude oil is the commodity most people associate with Hormuz. Brent crude oil prices surpassed US$100 per barrel on 8 March 2026 for the first time in four years, rising to US$126 per barrel at its peak. That number, however, captures only the first order effect.
The second order effects of an oil shock run through every sector where petroleum is an input or an operating cost. Transport fuels are the most visible: diesel prices affect every truck that moves goods from a port to a warehouse or farm to a market. Aviation fuel follows crude with a short lag, and 30 per cent of Europe’s supply of jet fuel originates from, or transits via the Strait, meaning airline operating costs rise even for carriers with no Middle Eastern routes.
Petrochemicals are a more consequential but less discussed channel. Crude oil is the feedstock for plastics, packaging materials, synthetic fibres, pharmaceuticals, paints, adhesives, and thousands of industrial chemicals. When the crude price rises sharply, the cost of manufacturing almost everything that contains, or uses a petroleum -derived material, rises with it.
The third order effect is more diffuse but cumulative. Higher diesel costs raise freight rates, which raise the delivery price of all goods.
The International Energy Agency has coordinated a release of 400 million barrels from emergency reserves to buffer the immediate price spike, but reserves buy time; they do not replace structural supply.
It may, perversely, spell good news for T&T if I told you that the LNG impact may be more severe. Natural gas powers electricity grids, heats homes, fuels industrial processes and serves as the primary feedstock for nitrogen fertilizers. Qatar is the world’s second largest LNG exporter, accounting for nearly one fifth of global shipments, and almost all of that production passes through Hormuz. Iranian missile strikes inflicted extensive damage on Ras Laffan Industrial City, the world’s largest LNG export facility, and Qatar had already suspended LNG production following earlier Iranian drone attacks. QatarEnergy subsequently declared force majeure on its contracts with buyers.
LNG prices are approaching three year highs and this has a knock-on effect on electricity prices. Populous countries in East Asia have limited storage and procurement flexibility, meaning disruption would result in rolling power cuts to industry and households.
The fertiliser chain is where the Hormuz disruption moves from an energy story to a food security story. About one third of global seaborne trade in fertilisers typically passes through the Strait of Hormuz leading to double digit price increases. Now, recognize that farmers who cannot afford or source fertiliser at current prices will reduce application rates, and lower application rates reduce crop yields. This is where you end up with food inflation especially as the Northern Hemisphere spring planting season runs from mid February to early May.
Sulfur receives almost no coverage in energy or commodity market commentary, yet it sits at a critical node in the fertiliser production chain. Sulfur is a byproduct of oil and gas processing, and the Gulf states, as major oil and gas producers, account for approximately 44 per cent of global sulfur trade through Hormuz. Sulfur’s role is in phosphate fertiliser production, another key agricultural input.
Next up is helium which presents a different risk profile from the other commodities discussed here. It is not broadly inflationary, but it is a critical bottleneck in several high value, technologically indispensable applications where no commercially viable substitute exists.
Qatar produces approximately one-third of the world’s helium, and the shutdown of the Ras Laffan complex has taken that supply offline. Helium’s physical properties make it irreplaceable in specific applications including semiconductor manufacturing. Qatar is home to one of only two plants that produce semiconductor grade helium. The memory chips for all your devices are impacted here.
We are talking production disruptions in semiconductors, aerospace, electronics manufacturing, automotive production, medical imaging and interestingly enough data centres. Add to the mix the current usage of AI and the capital invested into data centres that predominantly run on natural gas at this time. There may or may not be an AI bubble but these are situations that create the catalyst for things that we don’t ordinarily expect.
The multiplier
Even before any single commodity price move is felt in end markets, the insurance and freight shock from the Hormuz closure applies a cost multiplier across all traded goods. If Yemen were to step into this conflict and impact the Red Sea then you would also have another episode of ship rerouting that adds approximately two to three weeks to transit times between Asia and Europe, raising shipping costs and tying up container capacity.
What started out as “not a war”, bombing raids and a decapitation strike against Iranian leadership has morphed into something much more serious. The second order effects described above have a cascading effect. An LNG shock raises electricity prices, which raises the cost of aluminium smelting and petrochemical production. A gas price spike raises nitrogen fertiliser production costs, which raises grain production costs, which raises food prices with a growing season lag. Higher diesel and freight costs raise the delivered price of every traded good, including fertilisers that were already expensive. A helium shortage constrains semiconductor production, which constrains the availability of chips used in automobiles, industrial equipment, and data centres, creating supply bottlenecks in sectors that appear entirely disconnected from Gulf energy markets.
The situation in the Strait needs to be straightened out quickly.
Ian Narine is a financial consultant who is hoping for an outbreak of peace. Please send your comments to ian@iannarine.com
