The other Strait of Hormuz shock
Disruption to commodities far beyond oil and gas will have a long-lasting impact
The editorial board
The damage that could be done to global energy markets by closing the Strait of Hormuz was long anticipated (except, perhaps, in the Oval Office).
Less well understood was the fact that the waterway is a vital artery, too, for chemicals, metals and fertilisers.
Disruption to shipping is affecting sectors from AI and semiconductors to mining and food production, compounding the energy shock.
And, as with energy supplies, upheavals could persist beyond the end of US and Israeli strikes on Iran.
Take helium.
Qatar accounts for about one-third of global supplies of the gas, a byproduct of natural gas production at the vast Ras Laffan field.
Not only are exports blocked through the strait but Ras Laffan’s infrastructure has suffered long-lasting damage from Iranian retaliatory strikes.
This is bad news for the semiconductor industry, which uses helium to cool wafers during manufacturing; Taiwan and South Korea get the majority of their supplies from Qatar, whose high-purity helium is not easily substituted.
Helium is also important for fibre optics, defence manufacturing and medical imaging (the gas cools MRI scanners).
Semiconductor manufacturing is hit, too, by the disruption to sulphur, of which the Middle East accounts for about 45 per cent of global exports.
Sulphuric acid is used for cleaning wafers — and is essential, too, for mining, in the leaching of copper, cobalt and nickel.
All three metals are important, in turn, for making batteries for electric vehicles — and even before the Iran conflict, tech and EV demand was creating a sulphur supply squeeze.
The biggest user of sulphur, though, is the fertiliser industry, in phosphorus fertilisers.
Even more significant for the global food industry, Gulf states are important sources of urea and ammonia for the nitrogen fertilisers that underpin about half of global food production.
Blockages in the strait are leading to surging urea prices and fertiliser shortages, just as the northern hemisphere planting season begins.
Some economists warn that prolonged disruption could create worse problems than Russia’s full-scale invasion of Ukraine in 2022.
Some countries have reserves of some of these commodities, but the longer the conflict persists, the more these will be depleted.
Alternative suppliers also exist, but competition is driving up prices.
So just as the Ukraine conflict did, the Iran war is likely to reshape trade dependencies.
Many countries, especially in Asia, will be seeking to reduce future reliance on the Middle East for energy and other commodities.
Russia, whose fertiliser industry was penalised in 2022, could be a winner this time as it positions itself as an alternative supplier of farm chemicals to the developing world.
Moscow could gain, too, from a squeeze on primary aluminium, of which Gulf countries produce about one-tenth of global supply.
Lower crop yields and higher food prices could be a particular difficulty for developing countries, many of which are already struggling with debt service costs.
Food inflation is particularly sensitive in poor economies and has been a driver of unrest in a string of countries since the Covid pandemic.
Across the world, though, the combination of the energy shock and commodity shortages increases the risk of stagflation.
And now that Iran has tested its capacity to close the strait — and understood how potent a weapon this can be — it may be tempted to do the same again should new tensions arise.
After reportedly allowing a handful of “non-hostile” vessels to transit the strait after paying undisclosed fees, Iran has hinted it may seek “tolls” in future, adding permanent costs to global supply chains.
Industry will need to diversify and find alternative suppliers and supply routes.
But some choke points are hard to entirely de-risk — and the Strait of Hormuz is one of them.
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