In the latest episode of “Talking Trade,” UW-Madison Prof. John Pevehouse says the ongoing conflict in Iran is affecting more than oil markets, as the key trade route in the region is being used as a bargaining chip.
The interview was recorded Wednesday, one day after a two-week ceasefire in the Iran war was announced.
“We’ve seen wild market swings, you know, as the conflict has gone on, and clearly there’s been a tremendous depression of trade effect,” Pevehouse said.
While the earlier closure of the Strait of Hormuz had led to skyrocketing fuel costs in the United States and elsewhere, Pevehouse notes the critical shipping route is used to transport the element helium, used for processing computer chips and components.
“Helium is essential, and so that can disrupt the tech sector pretty easily,” he said. “You also have other kinds of refined petroleum products, but also you have a lot of petrochemical feedstock that comes out of the region, in other words, fertilizers and intermediates.”
As much as a third of global fertilizer industries depend on goods moving through the strait, Pevehouse said, noting ripple effects from the conflict through agri-business supply chains.
While the United States has shifted toward energy independence in the past two decades, becoming a net energy exporter, Pevehouse pointed to a “boomerang effect” as Asian countries affected by the conflict drive up prices globally, including domestically.
Meanwhile, as negotiations play out between the U.S. and others in the region, the “omnipresent” threat of Iran closing the strait once again will remain, he said.
“That said, Iran depends on the strait too,” Pevehouse said. “People talk about, ‘Well, they could sink ships and close the strait.’ But that cuts them off too, and that gives them no source of capital.”
Talking Trade is hosted by E.M Wasylik Associates Managing Director Ken Wasylik and M.E. Dey & Co. President and Managing Director Sandi Siegel.
