The war in Iran created an oil problem in the Strait of Hormuz. It’s not the only price you’ll pay
Iran’s effective shutdown of the Strait of Hormuz has locked up 20% of the world’s oil. But there’s more to the story.
Oil and gasoline have gotten all the headlines in recent weeks for good reason: Surging fuel costs have led to a price shock at the pump – one many commuters and drivers can’t avoid. Meanwhile the stuff we buy at stores gets there by truck, boat or plane, all of which run on diesel that costs significantly more because of rising oil prices.
But the locked-down Strait of Hormuz has restricted access to other goods, too. And those could raise prices beyond the gas pump for consumers and businesses, creating an inflation double whammy.
Among the first consumer prices to gain will be food costs, particularly perishables like dairy, fruit, vegetables, fish and meat. It’s not clear how much, but you might have already started to notice it a bit.
Food prices could start to rise even more in the weeks and months ahead because of another crucial cost: fertilizer.
The Middle East is a major source of urea, a form of crystalized nitrogen that is used in most fertilizers throughout the world. About 35% of the world’s urea and more than 20% of the globe’s fertilizers pass through the Strait of Hormuz, according to the Center for Strategic and International Studies.
That could start to hit American farmers in the coming weeks, and it’s particularly ill-timed because of the coming growing season.
More than a quarter of the world’s helium comes from Qatar and travels through the Strait of Hormuz, according to the US Geological Survey.
The huge demand for AI chips has caused a global helium shortage for years. Helium helps cool equipment used for making semiconductors. That’s why you’ve seen some party stores run out or charge an arm and a leg to fill a balloon.
Certain chips are already in short supply, and that shortage is expected to make smartphones and computers more expensive later this year. If the industry also can’t get helium, that could compound the problem.
Helium is also a crucial element in medicine, used to cool MRI machines, according to the National Academies of Sciences, Engineering, and Medicine. The industry has adapted by recycling helium and working to source it from other locations, but medical test prices could eventually go up as a result.
Aluminum prices have shot up because of Trump’s tariffs, and they recently surged to a four-year high because of the Strait of Hormuz closure.
Roughly 20% of the world’s raw aluminum comes from the Middle East. Aluminum is used in a large number of building materials and could add to the already high cost of homebuilding.
US natural gas prices have come way down from the winter but remain higher than in previous years. The United States gets most of its electricity generation from natural gas.
But natural gas prices have absolutely exploded higher in Europe and Asia, doubling since the war started. That could send prices higher around the world and create more demand for US liquefied natural gas, keeping prices somewhat elevated for Americans.
Plastics and chemicals
Crude oil byproducts are key components of plastics, resins, polymers and petrochemicals, many of which are produced and shipped primarily from the Middle East.
For example, most of Asia’s naphtha – a chemical used in paints and cleaners comes – through the Strait of Hormuz, according to the Independent Commodity Intelligence Services. And resins and polymers used in packaging largely comes from the region, too.
The war has already prompted other regions that make those materials, including Latin America, to make more, and they’ve responded to increased demand by raising their prices, according to S&P Global.
India is the generic drugs capital of the world, and it’s responsible for a fifth of the world’s drug manufacturing and two-thirds of its vaccines, according to Boeing’s World Air Cargo Forecast.
But the war with Iran has also disrupted some key air shipping lanes, particularly to Europe. That’s a problem because certain drugs need to be shipped quickly, and the strait’s closure could lead to higher drug costs.
