Opening Hormuz will not mark the end of the crisisS&P 500SP:SPXSwissquoteThe military operations launched by the United States and Israel against Iran on Saturday, February 28 have had a major impact on international financial markets through supply constraints on oil, natural gas and urea fertilizer, which normally transit through the Strait of Hormuz. These facts are now well understood by all, and the prevailing narrative tends to assume that the future reopening of the strait (because be convinced, this crisis will come to an end, like all past geopolitical crises) will immediately end macroeconomic pressures. The situation is more complex than that, as it is not enough to press a button (an on/off switch) to restart the oil and gas production machine in and around the Persian Gulf. At this stage, around 50% of the energy production capacity is shut down in the region, and export flows are only at 30% of their volume prior to February 28. Let us recall the dominant fundamental factors: • 25% of global crude oil exports pass through the Strait of Hormuz • 20% of global liquefied natural gas exports • 35% of global urea fertilizer exports • The majority of these exports are destined for Asia (80%), the core of global economic growth The reopening of the Strait of Hormuz will certainly be excellent geopolitical and macroeconomic news. It will represent the first step toward a return to the pre-February 28 world, but the normalization process will not take just a few days. It will take several weeks for a full normalization of: • The entire oil & gas production infrastructure in the Persian Gulf, sometimes even several weeks to restart facilities that have been completely shut down • Several weeks will be needed to reorganize and restore maritime transport via supertankers. This is indeed the message conveyed by the International Maritime Organization (IMO), based in London • During this period, global inventories will continue to decline and will need to be rebuilt • After several weeks, the global production and transport system for energy will be restarted, but there will still be a geopolitical risk premium and significantly higher insurance costs for tankers compared to before February 28 The table below shows current and future constraints on the supply of oil, gas and urea. It will therefore take time, probably several weeks, for oil and gas prices to normalize in financial markets, and there will be an upward impact on nominal inflation rates worldwide. The overall reaction of major central banks remains unknown, but keep in mind that day one of the reopening of the Strait of Hormuz will not mark the immediate end of the economic crisis. The infographic below shows tanker navigation through the Strait of Hormuz (source: MarineTraffic). 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