This will happen: If IRAN really closes the STRAIT of HORMUZ!
Yday night, Iranian parliament announced a closure of the Strait of Hormuz, from which 20% of the global oil supplies pass every single day.
Yday night, Iranian parliament announced a closure of the Strait of Hormuz, from which 20% of the global oil supplies pass every single day.
And if the same is now approved by what’s called the Supreme National Security Council of Iran, then their military will get into official action to implement the decision.
And this will be a catastrophic thing for the world, especially India. Below are a few perspectives.
Oil prices will move north (already up from ~$57/barrel to $77/barrel in less than 2 months).
With 20% of the global supply being chosen on a daily basis, prices could go past $90, $100, $120, $140 per barrel, depending on how long the strait remains closed
And for a country like India, which is the world’s 3rd largest consumer of oil, and imports ~85% of it, this would cause damage on multiple fronts
It will bleed the Current Account, deplete forex reserves faster, and also stoke up inflation, even if Govt asks the oil PSUs to absorb the losses
Good thing is, thanks to suppliers in Russia, the US, Brazil, Guyana, Nigeria etc, India would not face a shortage of oil.
But, this oil will cost dearly.
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Gold prices will gain further momentum.
We are already at a point where jewellery markets are bleeding massively, given the erosion of demand.
Whatever jewelleries are being purchased in India today, much of it is only for weddings
There too, every news report confirms that more and more jewellers are reporting an increasing shift towards people exchanging existing gold against new jewelleries
Gold prices have shot up so much in such short time. But, the people don’t have such elastic budgets/income
On top of it, whatever sales are happening, a sizeable chunk is basically from people looking to buy coins/bars for investment.
And on these, the making charges are much lower. Thus, jewellers don’t make much money.
Silver will continue to lose the shine.
This is because half of the global silver consumption comes from industries.
But, with global growth taking a hit due to higher and volatile oil and gas prices, industrial activity is bound to take a hit (or such are the prospects).
And that will weigh on the outlook for silver.
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Meanwhile, whenever oil prices go up, the countries across the world see a significant rise in demand for other fuel sources like gas and coal.
And as those go up, the cost of production for steel, aluminium, and several such much consumed commodities also go up, while prices take a hit due to reduced global growth.
And hence, the whole commodities space will see a lot of pain and flux.
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Apart from this, the key oil exporting countries, which depend so so much on the Strait of Hormuz, will all take a hit in exports - Saudi, UAE, Oman, Kuwait etc.
Also, Qatar’s gas exports could face impact. And given how much these monarchies depend on income from such exports to run their ships, if Iran manages to sustain the closure for long enough, we could see Middle East de-stabilise in a big way - in theory.
And this is a just a quick glance into a few key areas that will see big impact.
Thus, keep tracking how the closure of the Strait of Hormuz works out!
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Caution: Views shared are my own, and don’t make for any sort of investment/trading recommendation or advisory.
Best,
Jayant Mundhra
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