Hormuz Shockwaves

One narrow strip of water can rewrite the price of everything. We dig into the Straits of Hormuz crisis and why an “effective closure” quickly turns into a global supply chain shockwave: oil above $100, tanker traffic collapsing, ships stranded, and the simple reality that without insurable risk, trade stops. We break down what’s happening on the water, why threats and attacks change routing and behavior instantly, and how talk of naval escorts collides with the messy workaround of shadow-fleet shipping.

We then zoom out to the uncomfortable math behind energy security. Hormuz normally carries about 20% of global oil and a huge share of seaborne trade, while pipeline bypass options are nowhere near big enough to replace lost capacity. That gap is where volatility lives. From there, we follow the knock-on effects that listeners actually feel: diesel and freight costs rising, warehouse and transport energy bills climbing, and fertilizer inflation pushing up farm costs, tightening food supply, and lifting prices for basics like grains and produce.

Finally, we connect the geopolitics to trade policy and business reality. Tariff escalation and renewed US-China tensions add another layer of uncertainty, and we talk through the implications of allowing sanctioned Russian oil to fill supply gaps. To round out the week, I share two stories that capture the same theme from different angles: BYD’s push toward five-minute EV fast charging and Denby Pottery’s struggle with soaring energy costs and weaker demand. If you care about global trade, logistics, oil markets, inflation, and supply chain risk, this is the map you need right now. Subscribe, share the episode with a friend, and leave a review so more people can find the show.

Transcript

Welcome To Chain Reaction

Hormuz Closure And Oil Surge

Why Hormuz Is A True Chokepoint

Escalation, Escorts, And Shadow Fleet

Food, Fertilizer, And Transport Costs

Tariffs, Trade Tensions, And Fragility

BYD Fast Charging And UK Factory Pain

More Episodes And Sign Off

Tony Hines 0:00

Hello, Tony Hines here, you're listening to Chain Reaction, all about supply chain advantage. Great to be here. Thanks for dropping by today. Great episode coming your way in just a moment. So stick around, stay tuned, stay informed, and stay ahead. Subscribe to Chain Reaction, you'll be first to know when new episodes are out. And you'll never miss an episode. Hello, you're listening to Chain Reaction, the number one podcast all about supply chain advantage, global trade and policy. I'm Tony Hines. Well, the biggest story of the week is still the closure of the Straits of Hormuz, and that's stopping oil from traveling from the Middle East to anywhere else apart from China at present. And it's pushing prices up. Prices have risen to over a hundred dollars for a barrel of oil coming from that area at present. And of course, ships cannot be insured because of the high risks that they might be sunk in the conflict. Until this is resolved, of course, costs for many businesses and indeed for consumers will rise. And it's likely that that will push growth down and inflation right up, which means interest rates will have to stay high or go higher as the risks increase. So not a good outlook for businesses and consumers until this conflict gets resolved. But there's little sign that that is gonna be any time soon. Well the narrow piece of waterway, very tiny strait in the Persian Gulf called the Straits of Hormuz. That's where all the action is. The strait is the narrowest point between Iran and Oman at the Musandam Peninsula. The minimum width is about thirty nine kilometers. That's about twenty one nautical miles, and generally it stretches between fifty six and ninety seven kilometers. That's about thirty five to sixty miles, and the overall length about one hundred sixty seven kilometers ninety nautical miles. It's about two to three hundred feet deep. It's difficult to close physically. Mining or blockading deep water is far more complex than in shallower choke points. The strait remains effectively closed to most international shipping due to the ongoing US Israel Iran conflict, with attacks on vessels, threats from Iran, and a dramatic collapse in tanker traffic. Oil prices continue to surge, and hundreds of ships are stranded across the Gulf region. Iran claims the strait is open only to non-US and non-Israeli vessels, though many ships avoid transit due to security risks. Shipping traffic has collapsed by over 90% with more than four hundred tankers stranded in the Persian Gulf. Attacks on vessels continue, with at least fourteen ships hit since the conflict escalated. Oil prices have surged above a hundred dollars, driven by the blockade and attacks. Iran's foreign minister insists the strait is open but close to US and Israeli ships, framing the restriction as targeted rather than total. But many vessels will not go there because they can't get insurance to travel through that strait, and the risks are high. The US Navy is preparing to escort oil tankers through the strait with support from an international coalition. This follows relentless attacks on tankers and rising global energy prices. Multiple vessels, including the Japanese and Marshall Islands flagships, have been hit by projectiles in the last 24 hours. Iran has warned that British cargo ships are now legitimate targets. Despite the blockade, some vessels, mostly part of the so-called Shadow Fleet, operating outside normal regulations continue to transit the strait. These ships often disable tracking systems and operate under opaque ownership. Iran is deploying sea drones, midget submarines and kamikaze drone boats, contributing to the effective closure of the waterway. In total, about sixteen ships have been hit by Iranian forces since the conflict began. The strait normally carries 20% of global oil, around 20 million barrels a day. The closures caused historic volatility in oil markets. Even with alternative pipelines, Gulf states cannot offset the lost capacity. The pipelines can't carry as much. The UK relies heavily on stable global energy flows. With Iran declaring British ships as potential targets, UK linked vessels are among the 1,000 plus stuck in the Gulf. According to SeaVantage, they have live reports and they tell you how many ships are stuck, and they currently say there's one thousand two hundred and sixty-five ships active across the Straits of Hormuz. So there are five hundred and ninety-four tankers, two hundred and ninety-six bulk carriers, one hundred and sixty-three cargo vessels, and a total of one thousand two hundred and sixty-five, which are all kinds of ships, cargo ships, gas tankers, everything else, bulk carriers. And they were the latest figures as we were putting the episode together, including eighty to ninety with British interests. G seven leaders are now considering coordinated naval escorts. Geography is all important here. About twenty million barrels of oil a day, crude oil and petroleum products normally transit the strait. That's about twenty percent of global oil consumption and about twenty five percent of all seaborne oil trade. It makes Hormuz the single most important energy choke point in the world. If we look at whether pipelines can be used, then the answer is they can, but the pipeline capacity that bypasses Hormuz is tiny compared to the twenty million barrels a day normally shipped. The bypass pipeline capacity is somewhere between three and a half and five and a half million barrels a day. The United Arab Emirates Abu Dhabi crude oil pipeline carries about one and a half million barrels a day and it runs from Fujari outside Hormuz. The Saudi Arabian East West pipeline, petrolline, can carry up to about five million barrels a day, and it moves crude to Red Sea ports. And other regional pipelines can transport relatively small volumes. But they're all insufficient to offset the twenty million barrels that goes by ship. There aren't really any alternative routes that are credible. The geography of the Gulf with Iran, Iraq, Kuwait, Qatar and Bahrain, they have no other outlet by sea except to go through Hormuz. Pipelines are far too small and will carry only a maximum of a quarter of the total daily barrel total that can be shipped, which is twenty million barrels a day. LNG exports from Qatar and UAE about nineteen percent of global LNG trade. They have no alternative route at all. So LNG is badly affected. Overland routes politically or geographically impractical. There aren't any routes that can handle the volumes. So it's a real choke point, and that's why it's so important to have that waterway open. The attacks on Iran have been taking place for about three weeks now. There's about eighteen hundred people that have lost their lives, mainly civilians. The estimated cost to the United States so far is about twelve billion US dollars. And Iranian attacks have killed at least thirty people in Israel and the Gulf States, likely more. Energy markets are in turmoil, and fuel depots in Tehran have been struck by Israeli strikes. And of course there have been damages elsewhere. The Pentagon says it struck five thousand targets, fifty Iranian naval ships have been sunk, and Nisrael believes that less than one third of Iran's ballistic missile launchers are still operational. Iranian strikes on Gulf states has ebbed, but it's caused damage. It fired just forty four missiles and drones at the UAE on march tenth, and that's down from a high of three hundred sixty on march first. Iran's still firing though, and oil refineries in Abu Dhabi and Bahrain, the international airport in Dubai, and the port of Oman have all been targets. Three cargo ships were hit in the Persian Gulf on the eleventh of March, and Iran has also threatened to target banks in the Gulf, which has led a number of them to shutting down branches. In Qatar, HSBC closed and Standard Chartered will evacuate its officers in Dubai. Of course you can imagine the markets are in chaos as a result of all this hostility. Ninety percent of Iran's oil exports pass through Kog Island, and that makes it a critical economic lifeline for Turan, and that's been severely damaged by attacks in the last day or two. President Trump says that they've totally obliterated every military target on Iran's Kog Island, and warns he hasn't yet, but could target oil infrastructure. In retaliation, the US Embassy in Baghdad has been struck by a missile. An amphibious group is ready and been dispatched from the Sea of Japan, and that has a number of Marines on board. It's the USS Tripoli, and that's bound for Hormuz and possibly Cargyland. So still much going on. And of course, while it does, while the chaos persists, the risks are higher, the uncertainty is greater, inflation will happen, and the cost to everyone will be greater. With twenty per cent of oil coming from the Middle East through the Straits of Hormuz and twenty five percent of fertilizer coming from that area, it's gonna push costs up for lots of farmers and businesses supplying food. And so food costs are inevitably going to rise, the cost of heating, which uses oil, the cost of fertilizer, which is used to grow crops, all going upwards. I was listening to some farmers talking this week about how it's going to impact their business, and they were saying that fertilizer costs are gonna push upwards. They currently perhaps account for about a third of their cost when it comes to sowing crops, and it's likely to double. So it could become a hundred percent on top of that third, which would mean two thirds of cost would be incurred in fertilizer. And some are saying it's not worth growing the crops, but they're talking about selling on the fertilizer. So it's gonna change the pattern of what's available. So supply is going to change, and costs for things like tomatoes and grains and other costs are probably going to go upwards because supply is going to get thinner. Haulage firms are also finding it difficult, as the price of the diesel fuel has risen substantially over the past two weeks. Some are saying that it's gonna buy almost fifteen per cent or more. And that's gonna increase the cost of distributing goods. There's also the cost of heating warehouses, and there's the cost of fuel for ships, all rising as there's a shortage of supplies. So until the Straits of Hormuz is sorted out, those costs are likely to increase further. Now if that wasn't enough, we've still got the tariffs. The US administration has opened two major section three hundred one investigations into trade practices of sixty countries, signaling a new phase of tariff escalation. Current temporary tariffs of ten percent may rise to fifteen percent, and legal challenges are already emerging. Meanwhile, the government must process one hundred and thirty plus billion dollars in tariff refunds after the Supreme Court struck down earlier measures. China and Russia are drawing closer together for energy and economic security, partly in response to the US policy choices. This tightening partnership is reshaping trade flows across Eurasia and influencing global supply chain risk assessments. Renewed US China trade tensions have rattled global markets, with both sides imposing reciprocal port fees on shipping firms. President Trump has warned of a massive tariff increase on Chinese imports, contributing to a broader risk, which is causing concern among many investors. At the IMF and World Bank meetings in Washington, central bankers and finance ministers highlighted vulnerabilities in global trade, especially around AI supply chain bottlenecks and geopolitical uncertainty. Market declines linked to trade tensions have reinforced the concerns. UNCTAD reports a five hundred billion dollar expansion in global trade in the first half of the year, and the WTO has upgraded its merchandise trade growth forecast to two point four percent. But you have to remember that these forecasts are probably now coming way out of date, as the conflict in the Middle East is changing the landscape. So I suspect many forecasts are going to downgrade. There was news from the United Kingdom this week that growth is now zero. And that is likely to worsen if this conflict in the Middle East continues. So it's a real concern for governments trying to balance the books, and of course, trying to achieve some level of growth and investment. The investment landscape will be very, very affected by the conflict in the Middle East, and it's likely that many people will hold back on their particular investments until they can see how things are panning out. Price volatility is now a structural feature of the global economy. Energy security is a big issue for many countries, and AI supply chain fragility is emerging as a new systemic risk. And of course, those tariffs imposed by President Trump still doing much damage to the global economy. Now one of the actions that President Trump has taken this week to try and relieve some pressure on oil prices across the world is to allow sanctioned oil that's right, Russian sanctioned oil to be sold to countries to fill the gap in the oil supplies caused by the war in the Middle East. That of course would bring much needed revenue to Russia. And of course, what does it say about the efforts of Europeans and particularly Ukraine to end the war with Russia? The one that Russia started, remember. There's much to talk about when finance ministers meet at the IMF, wherever it takes place in the world. But presently there are some significant factors that are influencing the global supply chain map. Global debt is historically high, interest rates remain elevated, supply chains are still adjusting, geopolitical tensions are reshaping trade, and climate-related financing is accelerating. But the other key thing, of course, is all the wars taking place and all the disruption. Now, a war is of course a double-edged sword because on the one hand there are many trades that are disrupted, but some which can grow, especially in defence and electronics, as they supply more weaponry to conduct the war. So it's a tricky business. So when the spring meeting takes place in April of the IMF ministers, it will be interesting to see what the picture looks like then. And no doubt we'll return to that on-chain reaction at that time. Now let's turn our attention to a few other stories that were in the news this week. Now an interesting story that caught my eye this week was about BYD, the Chinese electric vehicle manufacturer, the one time battery manufacturer now turned global car manufacturer. And they're planning a new model to enter the European market which can charge the battery in five minutes on a fast charge. And that five minute charge will actually carry the car eight hundred kilometers. So the range is much further. And if you think about that, that's equivalent to a petrol car. In a sense you can fill up with petrol or diesel in less than five minutes and you can travel quite long distances. Well if you can do that on a five minute charge, then that's more or less equivalent. Of course, the infrastructure is still a problem. There aren't enough charging points, but if you can have a car that's charged to go eight hundred kilometers or more, then you could charge at home and travel the distance. So that's a massive improvement. We'll have to see how that one pans out, but that'll cause fierce competition for European car makers who don't have that same capability. Another story that caught my eye this week was about a pottery manufacturer in the Midlands of the United Kingdom, in Derbyshire. Denby pottery, which has been trading for over two hundred years, is finding that the cost of energy and the decline in demand for high quality pottery is reducing profits so much that they may have to lay off workers and possibly go into administration. And that would be a very sad state of affairs. So all these shocks when countries go to war and it changes the economics, it drastically affects these businesses. It's not just Denby, it's lots of other businesses. How many businesses out there are just hanging on by the fingertips right now? Maybe in hospitality, leisure, and now with the rise in fuel prices, airlines are saying that their costs are hit for fuel and the cost of air travel is likely to rise. So when governments take actions to start a war and cause the economic picture to change drastically, it affects people's lives. People, of course, lose their lives in the conflict, but it's got such a ripple effect throughout the global economy. And it really is time that we found better ways to resolve disputes than pressing the button to go to war. Denby Pottery is in serious financial difficulty and has filed a notice of intention to appoint administrators, citing reduced demand, soaring energy and employment costs, and an inability to secure a strategic long-term investment partner. The company is continuing to trade while it's exploring funding and restructuring options. 500 jobs are at risk. Denby reports that consumer confidence has weakened, reducing demand for premium but less essential purchases, and this has hit sales across the last three years. Soaring energy and employment. Costs as the energy-intensive ceramics manufacturer is squeezed by industrial energy prices and rising labour costs. Could the war in the Middle East be the last straw for Denby? Despite exploring multiple options, Denby has not yet found a long-term partner to invest in the business. There was a 17% drop in its turnover during 2024. High energy costs, industrial heritage at risk, and the viability of related brands like Burley, which reportedly has a forlored book despite the parent company's troubles. So it'd be a real shame if this business were not to survive the present, to continue into the future. There are some great episodes on Chain Reaction just waiting for you to pop by and pick them up. So if you haven't yet heard some of those episodes, stop by and have a listen and get yourself up to speed. We've got some more great episodes coming along during March and April, so make sure you subscribe and you'll be first to know when those episodes are out. Until we meet again next time. I'm Tony Hines, I'm signing off. Take care. Bye for now.