Rubio: Closure of Hormuz Strait would impact US economy.

Rubio: Closure of Hormuz Strait would impact US economy.

The escalating conflict between Israel and Iran has drawn global attention to the strategic significance of the Strait of Hormuz. This narrow waterway, just 33 kilometers wide, is crucial for global energy supply, carrying approximately 20 million barrels of oil daily, or about 20 percent of the world’s daily oil consumption [1]. The potential closure of the Strait of Hormuz could have severe implications for the US economy, as it relies on the waterway for a significant portion of its oil imports.

The US imports around half a million barrels of oil daily from the Gulf region, equivalent to 7 percent of its total oil imports [1]. Any disruption to this supply could lead to a sharp increase in global oil prices. According to Jassem Ajaka, an economist and professor at the Lebanese University, the closure of the Strait of Hormuz would likely push the price of a barrel of oil over $100, a $25 increase from current levels [1]. This would have significant ramifications for the US economy, as oil is involved in 95 percent of other goods and services [1]. Higher oil prices could lead to increased inflation, as the cost of raw materials and manufacturing processes rise.

Moreover, a closure of the Strait of Hormuz would disrupt global supply chains, causing delays and potential shortages in energy supplies. The US would likely face higher shipping costs as tankers would need to take longer routes around Africa. This could lead to increased transportation costs for goods and services, further exacerbating inflationary pressures.

The US would also face challenges in its monetary policy. The Federal Reserve would be confronted with a dilemma over whether to lower or raise interest rates in response to the increase in oil prices. Higher interest rates could help to cool down inflation but might also slow down economic growth. Conversely, lower interest rates could stimulate economic growth but could also exacerbate inflation.

Additionally, a closure of the Strait of Hormuz could lead to a global recession. China, which relies on the Strait of Hormuz for nearly half of its crude imports, would face severe shortages, potentially leading to a slowdown in its economy. If the repercussions of the strait’s closure spill over into multiple economies, it could lead to a global recession, posing another challenge in terms of how to revive the global economy.

In conclusion, the potential closure of the Strait of Hormuz could have significant economic implications for the US. Higher oil prices, disruptions to supply chains, challenges in monetary policy, and the risk of a global recession are all potential consequences. The US, along with other global powers, has a major interest in keeping the strait open to avoid these potential economic disruptions.

References:
[1] https://www.arabnews.com/node/2605319/business-economy