One week into President Trump’s war on Iran, the most severe shock to energy markets since the 1970s is cascading through the world economy. The disruption quickly fed into higher gasoline and diesel prices at the pump, and higher mortgage rates and borrowing costs for the U.S. government, endangering Trump’s economic priorities.
To be sure, the U.S. has more shock absorbers this time around. Oil is a far smaller component of gross domestic product than it once was, and the U.S. has become a top energy exporter in its own right.
Appearing Sunday on Fox, U.S. Energy Secretary Chris Wright said that “energy will flow soon” through the Strait of Hormuz. He blamed the rise in prices on “the unknown that this could be some long, you know, drawn-out crisis. But it won’t be.”
Whew. That’s a relief.
Massive amounts of fertilizer sail through these waters, feeding crops on every continent. The few ships that have left the strait since the start of the war were mostly carrying Iranian oil. Traders say crude markets could soar even higher if the strait doesn’t open within days, either with U.S. naval escorts or because shipowners think the danger has receded
The strait’s closure is spilling through commodity markets. Aluminum prices hit multiyear highs after Middle Eastern smelters declared force majeure—a legal maneuver that means suppliers aren’t liable if they fail to deliver. Norsk Hydro, which is curtailing output in Qatar, said a full restart could take six to 12 months.
“We are looking at what is by far the biggest disruption in world history in terms of daily oil production,” said energy historian Daniel Yergin. “If it goes on for weeks, it will reverberate across the global economy.”
Here’s what the experts are saying:
“In the whole written history of the strait, it has never been closed, ever,” said JPMorgan Chase analyst Natasha Kaneva. “To me, it was not just the worst-case scenario. It was an unthinkable scenario.”
The Trump administration says there’s nothing to worry about so you can rest easy.