Key Takeaways
Russia’s state oil and gas revenues are set to rise by 39 percent year on year in May to 700 billion roubles ($9.8 billion), a direct consequence of the global oil price rally fueled by the war in Iran that has paralyzed shipping in the Strait of Hormuz.
"The global economy is being held hostage, and the global south is paying the biggest price," Yvette Cooper, the UK's Foreign Secretary, said at a recent aid conference, highlighting the severe impact of the blockade on fertilizer and heating oil shipments.
The conflict has kept Brent crude prices about 60 percent above pre-war levels, according to the Wall Street Journal. This has had a significant impact on financial markets, with the yield on the 10-year U.S. Treasury note climbing to 4.687 percent as investors bet the Federal Reserve will raise rates to combat inflation.
The surge in energy prices benefits oil-exporting nations like Russia but creates strong inflationary pressures and economic strain for importing countries. The World Food Programme estimates 45 million people could face acute food insecurity if the Hormuz blockade continues, threatening to trigger a wider global crisis.
The war, which began after the US and Israel launched a campaign against Iran in late February, has effectively shut down the Strait of Hormuz, a critical artery for global trade. Before the conflict, 90 ships a day passed through the strait; that number has dwindled to about five, according to Cooper. The resulting spike in energy costs has been a significant boon for the Kremlin's finances, accounting for around a fifth of its total budget income.
The situation has also created political challenges in the West. In the United States, President Donald Trump's approval rating has fallen as Americans grapple with gasoline prices that have surged by about 50 percent since the war began. A recent Reuters/Ipsos poll showed just 35 percent of the country approved of Trump's job performance, with only one in four respondents believing the US military action in Iran has been worth it.
The fallout extends beyond just oil prices. The blockade has also cut off access to major fertilizer factories, leading to warnings of a potential global food crisis. "Fertiliser is a time-critical input: if shipments do not move from the Persian Gulf soon, farmers will miss application windows, crop yields will be lower and food prices will inevitably rise," said John Denton, secretary general of the International Chamber of Commerce.
The situation has intensified a selloff in global government bonds, as investors anticipate central banks will keep interest rates higher for longer to fight inflation. The yield on the 30-year U.S. Treasury recently climbed to a new 18-year high near 5.2 percent, a development that threatens to increase borrowing costs across the economy and has started to weigh on the stock market.
This article is for informational purposes only and does not constitute investment advice.
