By Vangelis Dourakis

In “uncharted waters” the international economy is once again entering: the escalation of the Israel -Iran conflict “scares” and re -causes markets to turn their eyes to the Middle East.

The most “darker” scenario is for this bloodshed to become a generalized global conflict. But even if the conflicts are strictly limited to this particular “neighborhood” without “third party” involvement, the world is confronted with the possibility of a new energy nightmare.

The key to the evolution of energy prices, which are those that receive all the “pressure”, listens to the phrase “Strait of the Ormuz”: it is a “bottle neck” through which almost 20% of the “flows”black gold“Transferred all over the world, but also of corresponding quantities of liquefied gas. If this “bottle neck” is “sealed” then this will mean an unprecedented “explosion” of prices, a global inflationary shock, while bringing the threat of a general war to the bay.

The ‘Strait of the Ormuz’ factor and the investors focus

Already before we even discuss such a possibility, there was a first reaction from the markets, which was reflected in the “jump” of oil prices which made the highest daily rise from 2022 with the prospect of further growth.

The Islamic Republic has in the past implied that it will not hesitate to make it difficult to “close” the Strait of the Ormuz, but this is the first time he has appeared ready to really put it on the table as a strategic blackmail paper.

If it triggers this “weapon” (which is still extremely detrimental to itself) it is estimated that oil prices will even rise to $ 130 a barrel of about $ 75 today. Fuels, as well as energy in general, will be done in such a case of “luxury”.

Whatever the case, the next 24 hours are critical, let alone when usually in similar events the immediate reaction of the markets is “sell now”. Something, of course, is not expected to apply to oil prices (as well as gold, of course), on the contrary, as they are estimated to “inflate” again and the issue is the extent and intensity.

At the moment and after the escalation of the war, investors appear to focus on the involvement of diplomatic or other “Great Powers” on the one hand and on the flow of “black gold” through the strait of the Ormuz.

As mentioned, in the area, between Oman and Iran, there is a key storage and trafficking point for about one -fifth of world oil. Possible interruption of the flow of “black gold” would raise risk premiums and prices.

The strategic significance of the straw of the Ormuz lies in the colossal amount of oil that is transmitted through the sea passage: it is indicative that on average 20.5 million barrels daily (BPD) of crude oil, condenses and oil products were carried by Arabia, Iran, United Arab Emirates, Kuwait and Iraq).

From there is almost all the amount of LNG exported by Qatar, which is the largest exporter of liquefied natural gas worldwide. Overall, about 80 million metric tones or 20% of global liquefied natural gas flows pass through the strait each year.

The “Bloc” on the “floating street” of the Suez Canal

It is no coincidence that countries in the region such as the United Arab Emirates and Saudi Arabia have repeatedly tried to find other streets to bypass the strait, including the construction of more oil pipelines.

And of course we must not forget that Iran is an energy superpower … and rightly: it has 10% of the proven oil reserves worldwide and 15% of gas reserves. It is the fourth largest producer of oil in the world and its production accounts for 11% of the total production of OPEC countries.

The wider region is decisive for the global economy and for one more reason: the Suez Canal is also a critical “floating road” that connects the Mediterranean to the Red Sea and through which it was traded about 12% to 15% of world trade in 2023.

Already due to the attacks by Houthi, maritime trade was seriously hit, as there is an assessment that the volume of goods passing through the Suez Canal dived by up to 42% in the past months.

The number of container ships passing through the Red Sea is limited rapidly, while fare prices and emissions increase sharply.

It is estimated that the weekly container ships have decreased almost 70%, and the tankers and gas transfers and vessels are also severely reduced, with any impact on the final consumer’s “pocket”.

It is indicative that fares from Shanghai to Europe have been overflowed, with that it implies the final costs of the products.
The premiums have also been launched, exacerbating the total cost of transit.

The role of maritime transport in international trade, after all, is extremely critical, as it is responsible for about 80% of the global trafficking of goods.

So the growing intensity of the war conflict in the region is a major blow to the global economy and brings it back to an “energy nightmare” and world inflationary shock. And most of all it shapes a future “dipped” in uncertainty, with what it entails.