Menu
4 min read
The relief from the 2-week ceasefire in financial markets is for forward-looking reasons: it breaks the cycle of escalation and reveals pain limits for each side. Lower energy prices (spot and forward) also reduce headwinds to global growth. However, two weeks are insufficient for material supply-chain relief as two-way transit takes longer: only stranded ships may move. GCC is 10-47% of global trade in energy-intensive chemicals, plastics, minerals and metals, and affect supply-chains from food, textiles and packaging to construction. A sustained opening may be necessary, as supply-chain disruptions compound over time, as production cuts begin to infect other sectors too.
2-wk ceasefire breaks cycle of escalation, but insufficient for supply-chain relief
The relief felt in financial markets is for forward-looking reasons: it breaks the cycle of escalation and reveals limits on the pain each side is willing to endure. Brent futures for Sep/Dec-2026 are just 16%/12% above 27-Feb levels; inventory-holders can demand less, so spot is down sharply. However, even if the Strait of Hormuz (SoH) opens unconditionally, 2 weeks do not suffice for supply-chain relief as two-way transit of ships takes longer.
GCC also dominates non-petrochemical but energy-intensive materials
Whereas non-petrochemical intermediate goods were just 16% of GCC (Gulf Cooperation Council: S Arabia, UAE, Kuwait, Bahrain, Oman and Qatar) exports in 2024, they were 10-47% of global trade in energy-intensive chemicals (fertilizers, textiles, methanol), plastics (packaging, battery casings), and minerals and metals (e.g., Sulphur, Aluminium).
A month into the war, prices of intermediate goods are already up 35-60%
As inventories dwindle, prices of plastic intermediates are up 36-40% vs. 27-Feb; methanol +50% (to make formaldehyde), ethylene glycol +36% (polyester, cooling), and nitrogen-based fertilizers +58%. While spot prices are down post the cease-fire, the SoH needs to be open for longer for relief on supplies. Energy inputs matter for food, where historically, global prices tend to move higher with spikes in energy prices; of immediate concern is rice, where we enter planting season across regions.
Supply-chain disruptions are contagious and compound over time
Disruptions to supply-chains from shortages first flow downstream, but as production curtailments begin, they being moving upstream, infecting sectors where the GCC may not be dominant. For material supply-chain relief, the re-opening of SoH needs to last several weeks, and even if tolled, not be selective. Readouts of the ceasefire ‘agreement’ from the two sides are inconsistent on how ‘free’ the movement through SoH would be. Even before the ceasefire, informal flows (dark fleets) were reported, which if true can buy more time.
To read the full report Click Here
