Holger Schmieding, the chief economist at Berenberg Bank, has identified the Strait of Hormuz as “the key economic risk to watch” amidst escalating tensions between the US and Iran. While Schmieding believes a complete disruption to energy flows in the Gulf region “seems unlikely,” his assessment underscores the critical importance of the waterway to global economic stability. The International Monetary Fund’s chief, Kristalina Georgieva, has already warned that US strikes on Iran could significantly damage global growth, largely due to the potential for disruptive oil price increases.
The Iranian parliament’s recent vote to consider closing the Strait of Hormuz, a direct retaliation for a US attack, has raised serious concerns. This crucial channel facilitates the transit of a fifth of the world’s oil consumption, and any closure would undoubtedly trigger a severe oil supply shock, leading to surging energy prices, increased inflation, and a likely slowdown in global economic growth.
Oil prices initially reacted strongly to the Iranian threat, jumping over 5% on Sunday to a five-month high of $81.40. However, prices later pared some gains, with Brent crude settling near $76 a barrel on Monday. Despite this, the potential for dramatic increases remains, with Goldman Sachs estimating oil could hit $110 a barrel if Hormuz flows are substantially reduced for an extended period.
In diplomatic efforts, US Secretary of State Marco Rubio has called any closure of the strait “economic suicide” for Iran and has urged China to use its influence, given its heavy reliance on the waterway. Analysts at RBC Capital Markets are also advising caution, warning of “clear and present risk of energy attacks” from Iranian-backed militias and emphasizing that the situation remains fluid, as evidenced by two supertankers reportedly changing course in the strait.
