What disrupting the strait of Hormuz could mean for global cost-of-living pressures

"Shipping through the strait of Hormuz, a narrow channel on Iran's southern border that connects the Persian Gulf with the Gulf of Oman, effectively closed in the wake of the missile attacks as companies swiftly moved to restrict transport. The strait is a key shipping route. Not only does a fifth of the global seaborne oil pass through it, so does a fifth of worldwide LNG shipments and about a third of global trade in urea the most widely used fertiliser."

"Of all the possible Middle East scenarios, the current state of play is one of the worst for the global economy, says the Commonwealth Bank of Australia's head of global economics, Joseph Capurso. He added: We expect the situation to escalate before it de-escalates. Iran's leadership and military capabilities have been significantly degraded."

"However, what is unknown is their intent and capability to block the strait of Hormuz that would sharply push up oil and gas prices. However, investors have so far remained relatively sanguine about other potential knock-on effects, reflecting a broad opinion that the disruptions to oil supplies will follow the script of recent years and prove short-lived."

A US-Israel military operation against Iran threatens to disrupt the Strait of Hormuz, a critical shipping channel through which one-fifth of global seaborne oil, one-fifth of worldwide LNG shipments, and one-third of global urea fertilizer pass. The Commonwealth Bank of Australia warns this represents one of the worst Middle East scenarios for the global economy, with escalation expected before de-escalation occurs. Iran's military capabilities have been degraded, but uncertainty remains regarding their intent and ability to block the strait, which could sharply increase oil and gas prices. Initial market reactions showed volatility, with Brent crude jumping 13% to $81.57 before settling near $77.53, while Asian markets recovered from early losses.

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