Markets have rightly focused on surging crude prices since the Strait of Hormuz was effectively closed nearly two weeks ago. The Strait carries roughly 20% of global oil and a quarter of liquefied natural gas flows, and the disruption is already forcing production shut-ins that will take weeks to reverse even after the waterway reopens. But the more complex and potentially longer-lasting economic risks lie not in the price of oil itself, but in the downstream supply chains that depend on Middle Eastern energy, raw materials, and niche industrial inputs. These lesser-known risks may have consequences that last far longer than any disruption in energy prices.
The Middle East serves as a key source of fertilizers, aluminum, and petrochemicals, which are downstream sectors characterized by high energy consumption and significant integration into global manufacturing networks. The region accounts for over $12 billion in fertilizer trade (16% of the global market, exceeding 25% for select nitrogenous products), $15 billion in aluminum, and $26 billion in petrochemical exports. Notably, energy costs account for approximately 30–40% of the total costs of aluminum smelting. Continuation of shipping constraints through the Strait of Hormuz, which handles 8% of worldwide aluminum shipments, could lead to substantial market disruptions and increased prices. For fertilizers, the Middle East is both a principal exporter and a vital supplier of natural gas, which is necessary for fertilizer production. Even specialized markets are significantly affected: Qatar supplies one-third of the world’s helium, a critical input for semiconductor manufacturing, and provides over 60% of Taiwan’s helium imports.
Asian economies face significant exposure. Japan, Korea, India, and Taiwan each obtain at least 40–50% of their crude oil and LNG imports from the Middle East, with even greater risk stemming from their reliance on refined petroleum products. Furthermore, countries such as Australia, despite being energy exporters, remain vulnerable due to their heavy dependence on Asian refineries and thus are affected by the conflict in the Middle East.
Global manufacturing had been showing signs of recovery. But energy shocks have historically derailed such recoveries. After the Russia-Ukraine war began in February 2022, manufacturing in developed markets fell sharply and has not fully recovered four years later. Sustained energy price spikes compress margins and reduce industrial output, and the second-order supply disruptions in fertilizers, petrochemicals, and industrial metals could amplify the drag on global production.
Investors should note that the risks from this conflict go beyond oil prices. Energy-dependent industrials, especially those linked to Asian supply chains, will be directly impacted, but the supply shock is global. Inflation effects may persist for years, and equity markets could remain volatile even after the conflict ends as its full impact emerges. Short-term investors may consider adopting a more defensive strategy, as the effects of the ongoing conflict are unlikely to subside soon. Long-term investors, on the other hand, can weather this period of uncertainty by maintaining a globally diversified portfolio.
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