💥RISK ALERT: Closing the Strait of Hormuz: Cutting the oil lifeline and fueling inflation & recession?
➡️FACTS
✅Iran’s parliament voted to close the Strait of Hormuz, the world’s most critical oil chokepoint (20 million barrels of oil pass it daily). But will Iran risk disrupting its oil exports and foreign currency lifeline?
✅So far, it has not happened but traffic has already dropped. Close to 50 large oil tankers scrambling to leave the Strait. LNG shipments are also at risk with roughly 20 percent of global LNG flows passing the Street.
✅Europe is heavily reliant on Gulf oil and in the past few weeks, prices have already risen more than 35 percent, climbing to the high $70s
✅Market & Risks Analysts are alerted. Platts: All eyes are now on the Strait & the complex of heavy sour and medium sour crudes which depend on the narrow 21-mile-wide channel to reach markets in Asia by tanker.
➡️IMPACT – SIGNIFICANT
✅If the strait is closed, the GLOBAL impact would be immediate & severe. Current pipelines through Saudi Arabia and the UAE can only reroute around 6 to 7.5 million barrels daily, leaving a supply gap of over 13 mn. barrels per day.
✅The inflationary impact would be global. For every $10 rise in crude, U.S. CPI alone could rise by 0.2 percentage points. Analysts estimate oil could spike to $130 or $200 / barrel
✅A full closure would ripple across energy markets, inflation, central bank decisions, supply chains, and political alliances. It would mark the most significant energy disruption since the 1973 oil embargo
➡️RISK MANAGEMENT – YOUR LIFELINE
Do you understand the total impact on your supply chain and the cost structure of your operations and products?
Your lifeline: understand your suppliers‘ cost structures and your supply chain risks, your only way to protect your company’s earnings and liquidity. Cost management is risk management and vice versa. What you need to do:
✅Awarenes & Strategy: Risk culture & risk strategy incl. ESG topics
✅Comprehensive SCRM: Operating model & Governance framework
✅Risk Identification: Risk categories, cost risks, compliance risks
✅Impact Analysis: Probability, impact, prioritization
✅Minimize Risk Exposure: Diversification, substitution, buffers, contracts, technology
✅Continuous (digital) monitoring: suppliers, logistics nodes, regions and performance measurement, markets & prices
✅Crisis Mgmt. Capabilities: Contingency plans, communication
✅Collaboration: Cooperation & supply chain transparency
✅Lessons Learned & Adjustments: Audits and agile adaptation
👉 Make sure your supply chain teams are empowered to act as cost and risk managers in the current climate.
Sourcing Graphic: Andy Critchlow, Platts Platts
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