Disruptions in ‘Strait of Hormuz’ have ripple affect beyond region on energy markets, maritime exports and global supply chains: UNCTAD

New Delhi, Mar 10 (UNI) The disruptions in the Strait of Hormuz underscore the vulnerability of critical maritime chokepoints to geopolitical tensions and their potential to transmit shocks across supply chains and commodity markets, said the UN Trade and Development (UNCTAD) report released on Tuesday.
The report noted that ongoing military escalations in the region had disrupted shipping flow through this narrow passage which have resulted in ripple effects far beyond the region, affecting energy markets, maritime exports and global supply chains.
“Oil markets have reacted quickly with the Brent Crude crisis now rising above USD 90 per barrel. Higher energy, fertiliser and transport costs including freight rates, bunker fuel crisis and insurance premiums may increase food costs and intensify cost-of-living pressures particularly for the most vulnerable,” the report warned.
The UN report compared the situation with COVID 19 pandemic and the beginning of war in Ukraine as those past times showed how sectoral disruptions can affect interconnected markets.
“Similar repercussions were observed during recent global shocks, including the COVID-19 pandemic and at the beginning of the war in Ukraine, which showed how disruptions in energy, transport and agricultural inputs can propagate across interconnected markets” it said.
While the overall global economic impacts will depend on the duration and scale of the disruption, the situation highlights the importance of continued monitoring, particularly implications for vulnerable economies.
The Strait of Hormuz, one of the world’s most critical maritime chokepoints, typically handles around a quarter of the globe’s seaborne oil trade.
However, the report reveals a staggering 97 pc drop in daily ship transits through the narrow passage. Average daily transits plummeted from 141 between February 1 and 27 to just 4 by March 9.
The sudden bottleneck has severely compromised global energy supplies, particularly to Asia. The region relies on the Strait for 84pc of its crude oil and 83pc of its liquefied natural gas (LNG) transported from the area.
Overall, crude oil makes up 38pc of the global seaborne trade volume passing through the Strait, followed by liquefied petroleum gas (LPG) at 29pc and LNG at 19pc.
Markets have reacted immediately to the shock. Between February 27 and March 9, the price of Brent crude oil surged by 27pc, pushing prices above USD90 per barrel.
Concurrently, European gas prices spiked by 74pc to 55.8 €/megawatt hour.
The disruption has sent maritime transport costs skyrocketing. Freight costs for shipping oil have reached historic highs, with the Baltic Exchange Dirty Tanker Index (BDTI) jumping 54pc and the Clean Tanker Index (BCTI) rising 72pc between February 27 and March 6.
Vessels are also facing immense operational costs. The price of marine bunker fuel in Singapore has doubled, with low-sulphur fuel prices rising 99pc and high-sulphur fuel prices increasing 100pc. Furthermore, war-risk insurance premiums for the Middle East have surged.
Premiums, which typically sit at 0.25pc, have seen increases of 100-300pc, meaning insurance costs per voyage for a USD 100 million vessel are doubling or quadrupling.
Beyond energy, the blockade poses a severe threat to global agriculture. One-third of the global seaborne trade in fertilizers passes through the Strait of Hormuz. This includes critical nutrients like urea, which accounts for 67pc of the fertilizer volume transported by sea from the Persian Gulf.
UNCTAD warns that access to these fertilizers may rapidly deteriorate for some of the world’s poorest countries. Several developing nations are heavily reliant on fertilizers imported by sea from the Persian Gulf, including Sudan (54pc), Sri Lanka (36pc) the United Republic of Tanzania (31pc) and Somalia (30pc) .
Historically, when oil and gas prices rise, food and fertilizer prices often follow suit, a pattern observed during the COVID-19 pandemic and the onset of the war in Ukraine. The UN organization warns that these higher costs will likely intensify cost-of-living pressures, particularly for the most vulnerable populations.
The ripple effects of the crisis are compounding existing economic vulnerabilities. Many developing economies are already struggling with high debt service burdens and limited fiscal space to absorb new price shocks. In the region itself, borrowing costs are increasing, while bond yields have ticked upward across nations like Iraq, Bahrain, Jordan, and Oman since the escalation began.
UNCTAD concludes the report by stressing that safeguarding maritime transport and de-escalating the conflict is critical to reducing risks to global trade and preventing severe setbacks to sustainable development.
UNI