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Source: Foreign Policy |
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The war that broke out opposing the U.S. and Israel to Iran has put big stress on global energy trade and supply chains. Iran’s attacks on other Gulf states’ strategic facilities and the closure of the Strait of Hormuz are mostly in cause. The World Bank has warned that the war is set to bring global economic growth to its lowest since COVID. The Global Economic Prospects cut its global growth forecast for this year. It dropped to 2.5% from 2.9% initially predicted. This is due to surging energy prices, rising inflation, and increased borrowing costs. It could worsen if supply was further disrupted. There has been a large focus on oil and gas supplies’ disruption. But many other sectors and commodities were hit too. |
As the perspective of a peace agreement goes back and forth, despite many announcements since the ceasefire, uncertainty remains. A peace deal has been reached between the U.S. and Iran yesterday. It should be signed on Friday. But that deal includes peace in Lebanon, which Israel is likely to breach again. Plus, the issues on Iran’s nuclear program has not been resolved yet. |
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Global commodity markets |
Sulfur, Urea, and Ammonia. They are crucial for fertilizers and pesticides. Sulfuric acid is also crucial to leach metal like copper or REEs. They have a key role in EV batteries, defense material and renewables. Qatar, Kuwait, and Iran together are major producers and exporters of sulfur. About 45% of the globally traded sulfur transits through Hormuz. Sulfuric acid already saw a 30% rise in its prices. Fertilizers also need urea and ammonia for their production. Prices rose up to 40% since the beginning of the war. This in turn causes increase in food prices. It could also lead to a decreased yields for staple crops like wheat, rice, and maize. Indeed, the war happened during spring planting season in the northern hemisphere. Brazil and Argentina, two big agricultural producers saw their input prices rise by 30%. Asian nations are also impacted. They rely a lot on Gulf supplies. |
Aluminum. Gulf states represent about 9% of the world’s supply. Last year, Gulf exports represented 21% of the U.S. imports, 25% of Japan’s, and 19% of the EU’s. When the war broke out, prices went up 8%. Iran hit the Emirates Global Aluminum. Production was then disrupted. This can have a direct impact on many industries. These include: |
Automotive Aerospace Electronics Construction Consumer goods packaging
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Helium. Helium is crucial for the semiconductor industry. It is the coldest substance on Earth. It is the go-to gas used to cool material like silicon wafers. Much of the world’s helium is a byproduct of LNG. Qatar represents one third of global supply. Indeed, Ras Laffan hosts some of the largest helium refining and liquefaction facilities. But Qatar had to close its facilities due to attacks. It could take months to years to rebuild the capacity. Some estimates even suggest that 14% of Qatar’s helium could be inaccessible for one or two years. Since the start of the war, prices went up to at least 50%. Semiconductors industries in Taiwan, Japan, and South Korea, have been disrupted. |
Aviation and tourism |
Aviation and tourism have been disrupted in many ways. The closure of airspaces in the region cut off key flight corridors. These latter link Africa, Asia, and Europe. Around 15% of global air traffic is handled by key airports in the Middle East. Many states had to repatriate their citizens. Airports also had to close or were attacked. Airlines then had to reroute their flights. They had to use longer flight paths to avoid that area. This increases travel time and flight costs. At the same time, prices of kerosene-based products increased. Airlines had to cancel flights and increase price tickets. |
As a result, tourism companies started alerting that their sector could be impacted. Less people are willing to travel in the Middle East. Even in states that were seen as safe, like the UAE. Plus, overall higher tickets prices are also a problem for many who already struggle with high fuel prices and inflation. |
If the peace deal fails before Friday, or does not sustain, and the war pursues, the outcome will likely worsen. The World Bank warns that global growth could fall as low as 1.3%. Worldwide headline inflation would average 4.4%. The UN warns that a scenario like the 2022 food crisis could happen again. This is very worrying for developing countries, already hit hard, who could face serious food insecurity issues. |
Decoding geopolitics isn’t a job. It’s survival. |
Joy |
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