Hormuz domino effect: Strait disruptions drive fuel, food and supply shocks

Iran announced Friday it was reopening the Strait of Hormuz for all commercial vessels during a 10-day ceasefire between Israel and Iran-backed Hezbollah, providing temporary relief to global energy markets that have been severely disrupted since the US and Israel attacked Iran on February 28. The closure of this critical waterway, through which approximately 20% of global oil and major liquefied natural gas flows pass, sent oil prices soaring above $100 per barrel and gas climbing by more than 12%, according to multiple reports from the IMF and World Bank Spring meetings in Washington DC. The economic fallout from the Hormuz crisis has been particularly severe in Asia and the Global South. According to Dr. Dan Steinbock of Difference Group, oil prices surged more than 50% while LNG prices soared as much as 143%, reaching a three-year high. The World Bank has readied support funds of up to $100 billion to help economically poorer countries deal with rising energy and food costs. World Bank Chief Economist Indermit Gill warned that the crisis could push 300 million people already facing acute food insecurity into deeper hardship, with that number rising by approximately 20%. Nearly half of the world's supply of fertilizer-grade urea and significant percentages of ammonia and diammonium phosphate are delivered through the Strait, raising fears of a global food crisis by June or July when planting seasons arrive in non-northern countries. Finance ministers from G7 nations, including UK Chancellor Rachel Reeves, expressed strong dissatisfaction at the IMF meetings about bearing the unintended costs of the conflict. Reeves described the war as "folly" and "mistake" not of their making. However, US Treasury Secretary Scott Bessent defended the administration, stating that "a small bit of economic pain for a few weeks is worth taking off the incalculable tail risk" of nuclear proliferation. Despite the ceasefire providing market relief, the World Bank and IMF signal that downside risks dominate, with global growth prospects shifting lower to 2.0-2.4% and potential oil spikes to $150 per barrel if the conflict intensifies.