The great commodities disruption

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Fifty per cent of the world’s seaborne trade in sulphur passes through the Strait of Hormuz. So does 34 per cent of trade in crude oil, 29 per cent of liquefied petroleum gas, 19 per cent of liquefied natural gas, 19 per cent of refined oil products, 13 per cent of chemicals, including fertilisers, and nearly 10 per cent of aluminium. This is a chokepoint of the world economy. It is a place in which one starts a war only after careful consideration of goals, means and risks. That is not what happened before the assault on Iran on 28 February 2026. As a result, two months later, we are where we are. (See charts.)

Yet where are we? The World Bank’s Commodity Markets Outlook, published on Tuesday, presents a detailed picture of the most important global outcome, namely its impact on supplies of all the stuff listed above. This war is a reminder that we do not live in an intangible world. Not only do we eat tangible food, wear tangible clothes and so on, but behind everything intangible — artificial intelligence and renewable energy included — lies an enormous quantity of tangible stuff, as the British writer Ed Conway showed in his book Material World.

So, if trade in vital stuff is blocked, unpleasant things quickly start to happen. As the World Bank notes, the initial impact of the closure of the strait was a global loss of 10.1mn barrels a day of oil in March. This was much larger than the impact of the Iranian revolution in 1979, the Arab oil embargo in 1973, Saddam Hussein’s invasion of Kuwait in 1990, or the Iran-Iraq war in the 1980s. It is the direct result of the closure, which reduced the number of tankers passing through the Strait of Hormuz from some 60 a day to close to zero after March 5. The inevitable outcome has been very large jumps in price: the price of oil per barrel jumped by $46 in March, far more than any other monthly rise in the 2000s. Between the beginning of the war and April 20, the price of Singapore jet fuel doubled, that of urea rose by 85 per cent, of Asian LNG futures by 46 per cent, and of Brent crude by 32 per cent.

What is next? Two big questions arise.

The first is how far the oil now blocked up in the Gulf can be replaced from other sources. On this the bank provides an intriguing and important analysis. Of the gross loss of 20mn barrels a day, 1.5mn can be made up by other Opec producers, 5.5mn by use of alternative pipelines, 3.3mn from inventories, 3.9mn from sanctioned oil in transit, 0.5mn from additional supply from high-income countries, and 0.5mn from biofuels (more difficult now, given the fertiliser shortage). This leaves a shortfall of 4.6mn barrels a day — a little over 4 per cent of global consumption. Yet the drawdown of inventories cannot last for ever. When they run out, the shortfall would rise towards 8 per cent of global consumption.

The second and crucial question is how long the near-total closure of the strait will last and how long it will then take to get things back to normal. Not surprisingly, the Iranian elite is split over what concessions it might make, not least on its nuclear programme. If one thing must be obvious to them it is that having a nuclear bomb would make them safer. Donald Trump has cycled through a dizzying number of objectives. Maybe the creation of a Strait Protection Corporation, with tolls shared between the US and Iran, would be the ideal answer for him.

The bank’s forecasts of commodity prices assume that the most acute phase of the supply disruptions ends in May. Thereafter, shipping volumes through the strait are assumed to recover haltingly, to stabilise around prewar levels by the final quarter of this year. On those assumptions, the bank’s energy price index is forecast to rise by 24 per cent this year. Prices of fertilisers are forecast to rise 31 per cent, with urea up 60 per cent. But food prices are only expected to rise 2 per cent this year, because large stocks were carried over from 2025. Next year might be more difficult for food supplies, particularly if the strait is closed longer than expected.

Risks are definitely on the upside: the bank’s forecast for the average oil price this year is $86 a barrel, more or less what the futures market suggests. But with more prolonged disruption and greater damage to facilities, it might reach an average of $115 (or more), with a legacy well into next year.

What are the conclusions from this?

The first and most obvious is that our interconnected world economy is vulnerable to the behaviour of rogue actors. In the past, that meant people such as Saddam Hussein or Vladimir Putin. Now they are the president of the US and the prime minister of Israel. That danger remains.

Second, while it is impossible to be truly safe from disruption, the case for insurance against shocks in the supply of fossil fuels is strong. The need to switch more rapidly to renewables and nuclear power has been underlined.

Third, the US, alas, is unreliable. It has shown that with its trade war and the doubt it has cast on its relationship with its Nato allies. This is likely to be true of its role as energy supplier, too.

Fourth, this is a sizeable disruption, which is sure to hit many of the world’s poorest people and most vulnerable countries hard. The rise in oil and fertiliser prices guarantees that. This underlines the moral case for continuing to provide international assistance.

Fifth, central banks are going to have a tricky time navigating the consequences. But they must not let inflationary expectations slip out of control.

Finally, the world economy will adjust. But how quickly and well it does so depends on an early end to the blockade. The one piece of good news is that Trump and the Iranians have powerful reasons to end the conflict: their peoples, economies and allies need it. Will they do it? Let us hope so.

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