Economic fallout unfolds as Strait of Hormuz remains shut

Since February 28, when the US and Israel initiated military actions against Iran, the Strait of Hormuz has been effectively shut to maritime traffic, sending ripple effects across the global economy. 

Brent crude, the international oil benchmark, again shot above $99 per barrel, marking a climb from earlier in the year when it traded at around $60 a barrel.

A major driver behind the recent surge in oil prices is the "lack of tangible goals in this war," Adi Imsirovic, an energy security expert at the University of Oxford said. "It makes it hard for oil traders to see the light at the end of the tunnel."

To mitigate the effect of oil supply disruptions, the G7 nations, coordinated by the International Energy Agency (IEA), are releasing 400 million barrels of strategic oil reserves – the largest emergency distribution in history. 

Economic ramifications of the conflict extend far beyond the crude oil market. Aluminum prices have surged to a four-year high, which will likely cause a sharp increase in the cost of construction, manufacturing, aerospace, and automotive industries. 

Dwindled shipments through the Strait of Hormuz have also driven up fertilizer prices, with roughly one-third of globally traded fertilizer passing through the strategic waterway. This will likely have a knock-on effect on the cost of corn, soybeans, wheat, rice, and overall agricultural production.

A press release by the World Food Programme (WFP) warns that the conflict is already undermining food security in the Middle East. "In Lebanon, significant internal displacement is occurring within a population that has been grappling with high levels of food insecurity for several years," the WFP's assessment said. 

Global markets are left reeling from consequent price spikes in commodities. The 225-issue Nikkei Stock Average ended down 633.35 points, or 1.16% on Friday. The South Korean market also continued to slide as the benchmark KOSPI slipped 1.72% to close at 5,487 on the same day. A calculation made by the University of the Thai Chamber of Commerce predicted that if the regional conflict in the Middle East continues for 3 months, Thailand's gross domestic product (GDP) growth forecast for this year may be nearly halved from the previously projected 2%.