The Strait of Hormuz has now been closed for over 7 weeks. And the damage to the global economy is increasing every day as the charts from Goldman Sachs confirm:
- The final oil and product exports from the region reached India after 8 days
- The last shipments to China and Europe have also now arrived
- N America is just about to receive its last shipment
Nobody know when free passage will resume in the Strait. But what we do know is that ‘turning on the tap’ again will take months, not weeks, as discussed last week.
And repairing all the damage caused by the war will take years, as a new report from analysts Rystad warns:
- The cost of repairs is escalating exponentially
- Rystad originally estimated it at $25bn
- Now they suggest it could have more than doubled to $58bn
CHEMICALS WARN OF GROWING DAMAGE TO GLOBAL ECONOMY
Chemicals are a key building block for the global economy. They are giving an early warning of the risks ahead:
- The chemicals industry contributes to >96% of manufactured goods, as the European Commission confirmed last year
- Today, major parts of the industry in the Middle East and Asia are unable to operate, or are at low rates, due to the Iran war
Europe highlights the risks, with chemical prices spiralling higher as the Bloomberg chart confirms:
- Q2 is seasonally the strongest quarter in the year, as the good weather returns
- And so buyers have had to ‘panic buy’ to maintain their operations
This supply chain panic will almost certainly keep building, now that new supplies from the Gulf have stopped arriving.
In turn, consumers are already facing higher prices. EU inflation jumped to 2.8% last month, from 2.1% in February.
There seems little to stop further rises, perhaps to 5% by the summer?
US PRICES ARE ALSO SPIRALLING HIGHER
Transport costs are a key multiplier for inflation. Almost all goods travel at some point.
So their costs are now increasing on a daily basis, whether they move by truck, or boat or jet. The US is only now seeing the impact of lost volume. But its diesel costs have already risen as the charts from John Kemp confirm:
- US retail diesel prices have risen from $3.52/gal in January to $5.61/gal so far in April
- They are already in the 87th percentile of costs, based on inflation-adjusted EIA data
Now these increases are starting to move through the supply chain. US Producer Prices rose 4% in March, and will be higher again in April.
ASIAN COUNTRIES ARE ALREADY SEEING SHORTAGES
Asia is one step ahead of Europe and N America. Cargoes from the Gulf stopped arriving in India last month. And now governments are having to intervene to avoid social unrest as Nikkei Asia confirm:
- State-owned companies control 90% of India’s gasoline/diesel market
- They have been told to avoid price increases, for fear of social unrest
- But even so, the state of Haryana has had to hike minimum wages by 35%
Employment is also reducing. 250k workers have already returned to their family villages, due to the shortage of LPG for cooking. Equally worrying is that:
“The conflict is also driving up the cost of inputs such as polyvinyl chloride (PVC), squeezing margins for micro, small and midsize enterprises (MSMEs) with limited capital. Such companies are India’s second-largest source of employment, after agriculture, and account for 30% of gross domestic product and nearly 46% of exports.”
India is not alone in worrying about social unrest.
A detailed IEA summary of 49 government responses highlights a wide range of subsidies and support measures already in place.
EUROPE HAS 6 WEEKS OF JET FUEL SUPPLIES
Asian companies were early to see the problems, as their Gulf supplies stopped. Almost immediately, as Reuters reports:
“Beijing placed a ban on export sales of diesel, gasoline and jet fuel from March 12”.
Now Europe is facing its first major supply crisis. 75% of its net imports of jet fuel used to come from the Middle East. Prices have already doubled as the BBC chart shows. And now the IEA is warning:
“Several European countries may start to face shortages of jet fuel in the next 6 weeks“.