First came the war. Then came the blockade. Now come the shortages. The tankers full of essential commodities — oil, liquid natural gas, urea, refined oil products, hydrogen, helium and so forth — have not sailed through the Strait of Hormuz since the end of February. Those that left before the closure have mostly arrived. From now on, the shipments that did not leave will increasingly be missed. As inventories are also drawn down, we will move into an era of physical shortages.
Up to now, shortages have been mostly imaginary. Now they will become real. They must be managed, ultimately by suppressing demand. The latter in turn will require some combination of rationing and recession. A blend of higher prices with tighter monetary policy could deliver both. The longer the strait remains closed and the bigger the physical damage, the longer shortages will remain and the worse their impact.
This, in a nutshell, is what Nick Butler, formerly group vice-president for strategy and policy development at BP and now at King’s College London, argues in a Substack post entitled “The end of the beginning”. Here, then, are some of the main elements in this worrying story.