The great commodities disruption

Half of global seaborne sulfur trade passes through the Strait of Hormuz. The same is true for 34% of crude oil trade, 29% of liquefied petroleum gas, 19% of LNG, 19% of refined petroleum products, 13% of chemicals, including fertilizers, and nearly 10% of aluminum.

This is a choke point in the world economy. It is the kind of place where war should only be launched after careful consideration of objectives, means and risks. That was not what happened before the attack on Iran on Feb. 28, 2026. As a result, two months later, we are where we are.

But where exactly are we? The World Bank’s Commodity Markets Outlook, published on Tuesday (April 28), offers a detailed picture of the most important global outcome, namely the impact on the supply of everything listed above.

This war is a reminder that we do not live in an intangible world. Not only do we eat tangible food and wear tangible clothes, but behind everything intangible, including artificial intelligence and renewable energy, lies a vast quantity of tangible things, as British writer Ed Conway showed in his book Material World.

So when trade in vital goods is blocked, unpleasant things begin to happen very quickly. As the World Bank notes, the initial impact of the closure of the strait was a global loss of 10.1 million barrels of oil per day in March. That is far greater than the impact of the Iranian Revolution in 1979, the Arab oil embargo of 1973, Saddam Hussein’s invasion of Kuwait in 1990 or the Iran-Iraq war in the 1980s. It is the direct result of the closure, which reduced the number of tankers passing through the Strait of Hormuz from about 60 a day to near zero after March 5.

The inevitable result was a sharp jump in prices: the price of a barrel of oil rose by $46 in March, far more than any other monthly increase in the 2000s. Between the start of the war and April 20, the price of jet fuel in Singapore doubled, urea rose 85%, Asian LNG futures climbed 46% and Brent gained 32%.

What comes next? Two major questions arise.

The first is how much of the oil now blocked in the Gulf can be replaced by other sources. On this, the bank provides an intriguing and important analysis.

Of the gross loss of 20 million barrels per day, 1.5 million can be offset by other OPEC producers, 5.5 million by alternative pipelines, 3.3 million by stock drawdowns, 3.9 million by sanctioned oil already in transit, 0.5 million by additional supply from high-income countries and 0.5 million by biofuels, though that is now harder given fertilizer shortages.

That leaves a shortfall of 4.6 million barrels per day, a little over 4% of global consumption. But stock drawdowns cannot last forever. Once inventories are exhausted, the deficit would rise to about 8% of global consumption.

The second, and crucial, question is how long the near-total closure of the strait will last and how long it will take for things to return to normal. Not surprisingly, Iran’s elite is divided over what concessions it could make, especially regarding its nuclear program. If one thing should be obvious to them, it is that having a nuclear bomb would make them safer. Donald Trump has cycled through a dizzying number of objectives. Perhaps the creation of a Strait Protection Corporation, with tolls shared between the United States and Iran, would be his ideal solution.

The bank’s commodity price forecasts assume that the most acute phase of supply disruptions ends in May. After that, shipping volumes through the strait are assumed to recover hesitantly and stabilize around pre-war levels in the final quarter of this year.

Under those assumptions, the bank’s energy price index is expected to rise 24% this year. Fertilizer prices are expected to increase 31%, with urea up 60%. Food prices, however, are expected to rise only 2% in 2026 because large inventories were carried over from 2025. Next year may prove more difficult for food supply, especially if the strait remains closed longer than expected.

The risks are clearly tilted to the upside: the bank’s forecast for the average oil price this year is $86 a barrel, roughly in line with what the futures market suggests. But with a more prolonged disruption and greater damage to facilities, the average could reach $115, or more, with effects extending well into next year.

What conclusions should be drawn from this?

The first, and most obvious, is that our interconnected global economy is vulnerable to the behavior of irresponsible actors. In the past, those actors were figures such as Saddam Hussein or Vladimir Putin. Now they are the president of the United States and the prime minister of Israel. That danger remains.

Second, although it is impossible to be truly safe from disruption, the case for insurance against fossil-fuel supply shocks is strong. The need to move more quickly toward renewable energy and nuclear power has been underscored.

Third, the United States is, unfortunately, not reliable. That was demonstrated by its trade war and the doubts it cast on its relationship with its NATO allies. The same likely applies to its role as an energy supplier.

Fourth, this is a major disruption, one that will certainly hit many of the world’s poorest people and most vulnerable countries hard. Rising oil and fertilizer prices guarantee that. The situation strengthens the moral case for continuing international aid.

Fifth, central banks will face a difficult task in navigating the consequences, but they must not allow inflation expectations to spiral out of control.

Finally, the global economy will adjust. But how quickly and how well it does so depends on a swift end to the blockade. The one piece of good news is that both Trump and the Iranians have strong reasons to end the conflict: their people, economies and allies need it. Will they do so? Let us hope so.

Source: text by Martin Wolf published in Folha de São Paulo

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