President Trump’s war of choice against Iran has focused the world’s attention on the strategic importance of the region, like nobody’s ever seen before.
Even casual consumers of the news flow knew that a large chunk of the global oil supply passes through the Strait of Hormuz and that any disruption to maritime traffic there would send the oil price soaring well into triple digits.
They weren’t wrong: in December, Brent crude oil price dropped below $60/bbl. This morning, it’s trading at $107 - a 95% increase in three months’ time! But this oil shock is only the most direct and obvious disruption from this war.
The closure of Hormuz will cause severe disruptions in many other markets which will have severe social and political consequences for Western nations by undermining their very economic foundations. Let’s consider a few examples:
Qatar supplies about a fifth of the global demand for liquified natural gas (LNG) . Since the war started on 28 February, Qatar’s exports collapsed to zero. As a result, the Baltic LNG index shot up by over 500% in the last week alone. But the ripple effects will be felt worldwide. Taiwan, for example, relies on LNG imports for electricity production. Nearly 9% of Taiwan’s electricity feeds TSMC chip production, which could be disrupted if Taiwan burns through its remaining ten days of LNG reserves. That may not happen in the short term, but the price paid for LNG will certainly soar.
Take sulfuric acid: it is the single most produced chemical in the world. Among other things, it is essential in extraction and refining of copper and cobalt. More than 90% of the world’s sulfur is produced through the oil refining process. The Middle Eastern war has not only reduced the world oil supply by up to 20 million barrels a day, the warring parties are busy blowing up each other’s oil refineries and with them, their output of sulfur. This will disrupt the production chains that include essential products like transformers, batteries and electronic components found inside every computer, data server and electronic device.
The most frightening disruption from Hormuz could affect global food production. Today, about a third of the global nitrogen fertilizer feedstock flows through Hormuz. This disruption could result in lower yields for many important agricultural staples, leading to soaring food prices and famine in many parts of the world. Famine is the driving force behind revolutions and in this sense, Europe could be among the most vulnerable regions of the world.
The EU has been the world’s undisputed champion of stupid when it comes to strategic thinking and forward-looking economic policy. They have zealously pursued net zero policies, severely curtailing the EU’s own energy production. Thinking much too highly of themselves and their values, they could not accept the unworthy Russian hydrocarbons. Instead, the Eurocrats have pushed for energy “independence” from Russia, relying more heavily on the U.S. and Qatar as suppliers of LNG.
The EU has also been pushing for a wholesale closure of chemical fertilizer plants across Europe, and with it the destruction of agricultural production. We are not at famine stages yet, but as a bit of a “foodie,” I couldn’t help noticing that even before the effects of the Iran war could impact local agriculture, supermarkets in France have carried less and less food, particularly the healthy, quality foods.
The quantity and choice are down very considerably from what we had before Covid lockdowns, and the prices have doubled and for some items more than doubled. If these trends continue, the old continent could be in serious trouble, the kind that nobody is really prepared for.
Unfortunately, it does look like those trends will continue since the whole EU bureaucratic apparatus doesn’t seem to have a reverse gear. War in the Middle East or no war in the Middle East, we have our directives, our incentives haven’t changed and we carry on destroying farms and ruining farmers.
In addition, social tensions are being deliberately enflamed to create chaos. In Croatia, for example, the Israeli ambassador is demanding that Croatia cut diplomatic relations with Iran. President Zoran Milanovic firmly rejected this and called the Israeli ambassador for a meeting, demanding that Israel refrain from meddling in Croatia’s policies.
Almost the next day, the public domain started to become inundated with a barrage of attacks against the President and fear mongering about the Iranian “sleeper cells” that are about to go rogue and start a campaign of terrorist attacks. Obviously, if that doesn’t produce the desired effect, real terrorist attacks might follow, which will result in real fear and polarization of society.
Croatia is a small country but it is a member of the NATO alliance and an important element in the Balkan powder keg. If detonated, that powder keg could lead to yet another cascade of wars in the Balkans. In the past, destabilizing the Balkans gave us the devastation of World War I. Certain interests in this world clearly desire chaos at this point. It will take strong, concerted collective action to douse the flames of war.
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By Independent News Roundup