For fifty years Pentagon planners, whose job it is to analyze risk and threats around the globe, have concluded year after year that the closure of the Strait of Hormuz is the worst possible scenario to confront - but it never happened – until now! The world is now witnessing firsthand what scared the military analysts. When big flows of oil and gas are interrupted it doesn’t take long to disrupt economic activity. Disrupt it long enough and the world economy grinds to a crawl. The fog of war is still thick. The fog of resolution is thicker still. How does this situation end? Understanding the Strait of Hormuz is an important first step.
The Strait of Hormuz has been a link in world trade routes for 4000 years but only in the past century has it become the strategic juggernaut it is today. The Strait is an international body of water 24 miles wide that separates the Persian Gulf and the open ocean. The Persian Gulf is a 615 miles long body of water bounded on the northeast side by Iran and on the southwest side by Iraq, Kuwait, Saudi Arabia, Qatar and the United Arab Emirates. What makes the Persian Gulf and its surrounding states unique is the geology - the planet’s most prolific oil and gas fields. This is the home field for the Organization for Petroleum Exporting Countries (OPEC). And export they do - in normal times 20 million barrels of oil pass through the Strait daily. In total 20% of the world’s oil, LNG and fertilizer are exported out of the Persian Gulf. Shut that 20% down and chaos ensues. The global logistic network developed over the past century to discover, extract, refine and deliver oil, gas and their myriad biproducts to the far reaches of the world and have them there reliably at reasonable prices is one of the great marvels of the free market. It is one of the world’s most complicated and vital supply chains. Shut down 20% of the flow of the world’s oil, gas and fertilizer for almost a month and you scramble the finely orchestrated logistics that provides critical inputs to the transportation, industrial and agricultural sectors of the world economy. Prices turn volatile and shortages disrupt production.
Meanwhile the financial markets have a role to play via futures markets where prices trade based on needs and production at future dates, one, two or more years ahead. The futures market may price a barrel of oil two years from now at $74 but that means nothing to the traveler flying to Singapore or Paris when Jet Fuel prices are $180 versus $100 a month ago. That current $180 Jet Fuel price is a warning of the hazard we face should the Strait remain closed longer than expected. Today’s crisis is the mirror image of the covid crisis in 2020. Covid driven decisions to shutter vast swaths of the economy created a lack of ‘demand’ shock to energy and many other sectors of the economy. This is a lack of ‘supply’ shock that could take months or years to stabilize and meet pent up needs. Extraordinary damage has been done to infrastructure that will impact oil and gas supplies and supply lines for months and years to come. Most notable is the damage to LNG facilities at Qatar. Qatar was the largest exporter of LNG and much of their production is now shut down. This is already redrawing the world’s energy maps. The price of LNG in Europe has jumped 60% in the last month. Qatar was their primary provider of LNG and they need it for electricity. LNG exporters in the Gulf of America are working to help meet those needs. Consider that in context with last year’s events in Venezuela and a teetering Cuba. How does this end? No one knows. Kinetic conflicts are dangerous events and always have unintended consequences. The damage done is massive and some of it will take years to repair. This war features the latest in 21 st century arms and munitions and an Old Testament adversary. That is a dangerous mix. Don’t expect a quick finish. For sure, when the fog of war clears the world’s energy map will look different than it did a year ago.
Ashby Foote, III authored this post and is a member of Bigger Pie Forum.
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14 comments:
I wish our Ag Comish would chime in with how this affects global fertilizer shortages. I read on ZH that several global breadbasket nations should be putting fertilizer on the ground right now. Unfortunately, those just-in-time shipments aren’t arriving. How will this affect Mississippi farm families? Well, perhaps we have plenty of fertilizer here. But what the world is going to need on the market this harvest season will likely not be corn. The majority of the world hates our GMO corn because it is devoid of nutrients and contributes to our obesity epidemic. So what is the Hat’s take on this?
@1:41 I have been hearing for weeks that some major farmers in the area have not been able to source fertilizer. I would highly recommend everyone read Titan the biography of John D Rockefeller to understand the importance of not just oil but the byproducts, also the World For Sale by Javier Bias to truly understand the geopolitical commodities business. It’s a zero sum game and the populace is clutching
Are Mississippi's having the day they voted for yet?
How bad can it really be for farmers?
Farmers brought a gold tractor to the White House.
The POTUS made vroom vroom noises.
What happens when the MRI machines shut down because 1/3 of the world's production of helium goes through the Straits of Hormuz?
Also half of America's generic medications are produced in India, which imports a lot of both the drug precursors and energy to produce the drugs through the Starits of Hormuz.
No I voted against the fool. I prefer free markets, not pissing down allies' throats, rampant corrupt and not abusing little girls and boys.
Americans quickly realizing that Israel is not at all a good ally, friend or actor. Lie, cheat and steal, they do not know any other way.
I am. I have been waiting 47 years on this.
The problem isn't the strait, or Iran, the problem is the ignorant decisions to offshore products that never should have been produced anywhere else. The problem is greed.
Fear not - We will never experience a shortage of fertilizer as long as Bigger Pie is in town.
This could all easily and permanently fixed, but soon the supplies will go up and prices will go back down and everyone will be quiet again. Has anyone noticed this for the past 75 years or so? I do get a laugh out of it all though, it’s literally the same thing year after year with literally anything.
Thanks 2:45 I’ve read both books but the shortsighted philosemites on this blog assured us that “a little short term pain is worth it” for Israel… err to regime change… uhm… to stop the rockets…. Now to ensure Iran never has nukes (but they certainly will now)
They didn’t care about the rest of the world!
Why do I get the idea that 4:04 has a swastika tattoo on his butt?
4:01 The TDS is real.
March 31, 2026 at 4:47 PM
+50,000
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