Hormuz Ceasefire Won't Undo Economic Damage Already Priced In, Experts Caution
The U.S.-Iran memorandum to reopen the Strait of Hormuz eases immediate energy supply threats, but analysts warn that nearly four months of war have already baked inflation into global supply chains, with food and fuel costs set to stay elevated for months.
The anticipated reopening of the Strait of Hormuz may be easing the most immediate threat to worldwide energy flows, but analysts caution that the economic problems from nearly four months of conflict are far from healed, and will likely take months to eventually recover.
The United States as well as Iran have both inked a memorandum on Thursday to unlock the strategic waterway, which had been choked off since the onset of hostilities that rattled global supply chains, stoked inflation, and darkened growth projections across major economies.
Yet even if tanker traffic through the strait returns to normal, elevated consumer prices have already been "baked in" for many nations, according to the deputy chief global economist at Capital Economics, Simon MacAdam.
Crude prices went lower than $80 today, a steep drop from the peak reached few months ago when the conflict was at its fiercest. Goldman Sachs this week revised its oil outlook downward, forecasting Brent to settle around $80 by late of this year, and $75 by next year, pointing to a quicker-than-anticipated restoration of Persian Gulf crude exports.
Europe looks especially exposed. MacAdam warned that the continent's already-depleted natural gas inventories face additional strain as U.S. LNG export prices climb, potentially adding 3 to 4 percentage points to inflation in Europe and Japan.
The crisis has triggered a broader rethink of energy security. Nations affected by the disruption are expected to build larger strategic reserves, accelerate domestic production, and diversify supply corridors to lower their dependence on the same supply chain movement through Hormuz.