The global economy and trade growth are expected to slow down significantly this year amid disruptions in the Strait of Hormuz affecting oil, natural gas, and fertiliser supplies, as the conflict reaches 100 days since the US-Israel war on Iran began on February 28.
The armed conflict in the Middle East has led to major challenges for the global economy, not to mention the loss of human lives.
Iran largely halted commercial maritime shipping traffic in the Strait of Hormuz in retaliation for the US and Israel’s pre-emptive attacks on the country.
Around 20 percent of the global oil and liquefied natural gas (LNG) gas trade, 30 percent of the fertiliser trade, around 40 percent of urea supply, 50 percent of sulfur supply, and 30 percent of phosphate supply were affected by the disruption.
The global daily oil consumption reached 104 million barrels in April, but oil supply remained at 95.1 million barrels. The daily loss for Gulf oil producers versus pre-war levels reached 14.4 million barrels with the Strait of Hormuz flow coming to a halt, according to the International Energy Agency.
Brent crude is trading 30 percent above pre-war levels currently, while European gas prices are 50 percent higher due to supply constraints.
Fuel costs for ships surged 59 percent during this period, according to the World Maritime Council.
Disruptions in the global shipping network and surging fuel costs place more and more pressure on the supply chain.
The sudden rise in prices and the contraction of the global fleet, as well as rising shipping costs due to vessels being stranded in the strait, and the disruption of many countries’ export and import balances, led to higher inflation estimates.
Declining consumption due to supply constraints and companies facing higher input costs led to sharp downward revisions in growth estimates for the global economy and trade.
The Organization for Economic Cooperation and Development (OECD) reported that the war and its duration will be decisive for assessing the global economic growth, according to its latest Economic Outlook report on Wednesday, forecasting two scenarios, namely “a time-limited disruption” and “a prolonged disruption” scenarios.
The OECD estimates that if the war is short-lived, the global growth could drop from 3.4 percent in 2025 to 2.8 percent in 2026, rising 3.1 percent in 2027.
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Meanwhile, a 0.6 percentage point slowdown in growth translates to a potential loss of at least $700 billion for the global economy, given that it is currently valued at around $118 trillion.
