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For years, geopolitical analysts warned us that among the scariest of all scenarios for the world economy was the closure of the Strait of Hormuz.
Well, now, in practice, that is precisely what has happened. Shipping through this narrow channel, the gateway to the Persian Gulf, has dwindled to close to zero. The worst nightmare has materialised.
And yet the funny thing is that in certain respects the world seems no different to how it was before. The S&P 500, the benchmark share index in America, has barely budged. The FTSE 100 is down a bit, but is still a bit higher than it was a month ago. All of which raises the question: might this not be quite as bad as everyone was fearing?
Money blog: change in cheapest day of the week to fly has changed
However, talk to those who understand energy markets and the economic geography of the Gulf and its customers, and a very different story emerges. True, the impact of the closure might take some time to be felt, but it could be totally destabilising, both for the Gulf countries and the wider world.
A harbinger of higher inflation
Starting with the wider world, the sharp increase in gas prices is a harbinger of higher inflation in the coming months. For a long time, countries like the UK had assumed that Qatar would be among the most reliable of all suppliers of natural gas. Now, not only are the LNG tankers that once took Qatari gas out and into the world unable to access the Gulf, but the Qatari gas fields are no longer operational.
For many Asian countries, from India and Pakistan to South Korea and Taiwan, this is a disastrous prospect. Most of them have little if any stockpiles of gas, so in the coming months they will scramble to secure enough methane to keep their power stations running and heating systems working. That, in turn, will chase up prices around the world, including in Europe, which is also dependent on LNG to fill some of the gap left by Russian gas following the shutdown of some of…
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