What does the closure of Hormuz mean for the economy? - According to analysts, further increase in global prices is expected
Analysts predict that if the Strait of Hormuz, a vital artery of global trade, remains virtually closed to shipping for just a week or two longer, a global energy price shock will translate into shortages of fuel, fertilizer and industrial raw materials, starting in Asia and spreading to Europe. Food prices will rise sharply.
By blocking Iran and its exports, Trump is actively contributing to a supply squeeze that threatens real economic, social, and political pain for European governments, at a time when their voters are already extremely unhappy with the cost of living.
Fossil fuel import costs in the European Union rose by more than 22 billion euros in just 44 days of conflict, European Commission President Ursula von der Leyen said on Monday.
“The Strait of Hormuz is essentially closed and, immediately, citizens are feeling the impact,” she added. “At the gas station, at the supermarket and on household bills. What we are seeing in the Middle East is not some distant crisis. But in a world where everything is connected, the effects are direct – and immediate.”
Despite 44 days of higher prices, the full economic impact of the war is set to get much worse.
US-Iran negotiations failed and Trump announced a blockade on Iran that matches Iran's own blockade of the Strait - all with no clear solution in sight.
In Europe, this means continued higher prices at the gas pump as crude oil rises back above $100 a barrel. Many European countries are also heavily dependent on gas for homes and industry, with higher costs expected to come during the winter heating season.
The painful costs could soon be accompanied by real shortages. Airports warned last week that, if the Strait remains closed for another three weeks, "systemic shortages of jet fuel will become a reality for the EU."
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