"The immediate response to the closure of the Strait of Hormuz, a 10% price increase, appeared rather benign for what was long-assumed to be the oil market's nightmare scenario. On Friday the situation changed, pennies started to drop. Derivative petrochemical products vital for livelihoods, and industrial supply chains that are also dependent on free passage in the Gulf, from jet fuel, to urea, are also spiking in price."
"Iran has not actually formally closed the Strait. They have de facto been closed voluntarily as insurance costs soar, and sailors fear for their safety. The net result is a wave of inflationary pressures emanating from the conflict zone, and upsetting global markets for energy, fuel, food, industrial chemicals, and credit."
"On Tuesday the price of a barrel of crude oil was assumed to be $63. It closed at $94 on Friday. A therm of gas delivered to the UK was assumed to cost 74 pence. It is 1.35, and got as high as 1.70 this week. The gilt rate, the effective interest rate on 10-year government borrowing was assumed to be 4.4%, it ended the week at 4.6%."
The closure of the Strait of Hormuz initially appeared manageable with a 10% oil price increase, but rapidly evolved into a broader economic crisis. Beyond crude oil, derivative products including jet fuel and urea spiked significantly. Insurance costs soared and safety concerns deterred shipping, effectively closing the strait de facto. Oil prices climbed from $63 to $94 per barrel within days, UK gas prices nearly tripled, and gilt rates increased substantially. These inflationary pressures rippled through energy, fuel, food, industrial chemicals, and credit markets. Government economic forecasts became outdated within days as the conflict's economic impact exceeded initial assumptions.
Read at www.bbc.com
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