The Manila Times
US and Israeli attacks on Iran have driven up prices, darkened the outlook for the world economy, sent global stock markets reeling, and forced developing countries to ration fuel and subsidize energy costs to protect their poorest. Ongoing strikes and counterstrikes on Persian Gulf refineries, pipelines, gas fields and tanker terminals threaten to prolong the global economic pain for months, even years. “A week ago or certainly two weeks ago, I would have said: If the war stopped that day, the long-term implications would be pretty small,’’ said Christopher Knittel, an energy economist at the Massachusetts Institute of Technology. “But what we’re seeing is infrastructure actually being destroyed, which means the ramifications of this war are going to be long-lived.” Iran has hit Qatar’s Ras Laffan natural gas terminal, which produces 20 percent of the world’s liquefied natural gas. The March 18 strike wiped out 17 percent of Qatar’s LNG export capacity and repairs will take up to five years, state-owned QatarEnergy said. The war caused an oil shock from the get-go. Iran responded to US and Israeli attacks on Feb. 28 by effectively closing off the Strait of Hormuz, a transit point for a fifth of the world’s oil, by threatening tankers trying to pass through. Gulf oil exporters like Kuwait and Iraq cut production because there was nowhere for their oil to go without access to the strait. The loss of 20 million barrels of oil a day delivered what the International Energy Agency calls the “largest supply disruption in the history of the global oil market.” The price for a barrel of Brent crude oil climbed 3.4 percent on Friday to settle at $105.32. That was up from roughly $70 just before the war began. Benchmark US crude rose 5.5 percent to settle at $99.64 per barrel. “Historically, oil price shocks like this have led to global recessions,’’ Knittel said. The war also has dredged up a bad economic memory from the oil shocks of the 1970s: stagflation. “You’re raising the risk of higher inflation and lower growth,’’ said the Harvard Kennedy School’s Carmen Reinhart, a former World Bank chief economist. Gita Gopinath, former chief economist at the International Monetary Fund, recently wrote that global economic growth, expected before the war to register 3.3 percent this year, would be 0.3 to 0.4 percentage points lower if oil prices averaged $85 a barrel in 2026. Fertilizer shortages and price hikes hurt farmers The Persian Gulf accounts for a big share of exports of two key fertilizers, a third of urea and a quarter of ammonia. Producers in the region enjoy an advantage: easy access to low-cost natural gas, the primary feedstock for nitrogen fertilizers. Up to 40 percent of world exports of nitrogen fertilizer pass through the Strait of Hormuz. Now that the passage is blocked, urea prices are up 50 percent since the war and ammonia 20 percent. Big agricultural producer Brazil is especially vulnerable because it gets 85 percent of its fertilizer from imports, Alpine Macro commodity strategist Kelly Xu wrote in a commentary. Egypt, a big fertilizer producer itself, needs natural gas to make the stuff and production falters when it can’t get enough. Eventually, higher fertilizer prices are likely to make food more expensive and less abundant as farmers skimp on it and get lower yields. The squeeze on food supplies will land hardest on families in poorer countries. The war also has disrupted world supplies of helium, a byproduct of natural gas and a key input in chipmaking, rockets and medical imaging. Qatar makes helium at the Ros Laffan facility and supplies a third of the world’s helium. Rationing gas and limiting the air conditioning “No country will be immune to the effects of this crisis if it continues to go in this direction,” International Energy Agency head Fatih Birol said on March 23. Poorer countries will be hit hardest and face the biggest energy shortages “because they will be outbid when competing for the remaining oil and natural gas,’’ said Lutz Kilian, director of the Center for Energy and the Economy at the Federal Reserve Bank of Dallas. Asia is especially exposed: More than 80 percent of the oil and LNG that passes through the Strait of Hormuz is headed there. In the Philippines, government offices are now open just four days a week and bureaucrats must limit the use of air conditioning to nothing cooler than 75 F (24 C). In Thailand, public workers have been told to take the stairs instead of elevators. India is the world’s second-biggest importer of liquefied petroleum gas, which is used in cooking. The Indian government is giving households priority over businesses as it allocates its limited supply and absorbing most of the price increases to keep costs low for poor families. But LPG shortages have forced some eateries to shorten hours, close temporarily or drop dishes like curries and deep-fried snacks requiring a lot of energy. South Korea, dependent on energy imports, is restricting the use of cars by public employees and has reinstated fuel price caps that had been dropped in the 1990s.
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