The Chokepoint Economy: What Occurs When Everything Fails Simultaneously

The Real Cost of War: Economic Fallout Hits Home

Few in Washington are openly acknowledging that the financial consequences of the current conflict will impact everyday Americans long before Congress debates the budget. The effects are already being felt at the kitchen table.

Energy Markets in Turmoil

This morning, oil prices soared past $115 per barrel. Brent crude briefly reached $119 overnight, while WTI experienced its largest weekly increase since futures trading began in 1983.

Stock futures for the S&P are declining. Japan’s Nikkei opened down 5%, and South Korea’s KOSPI dropped 6%. The VIX has spiked to levels not seen since the tariff disputes of the previous administration.

Despite these developments, the President took to Truth Social, describing the surge in oil prices as “a very small price to pay”—a sentiment few share.

Escalation in the Middle East

On February 28, the U.S. and Israel coordinated airstrikes against Iran, targeting military and nuclear sites, as well as leadership figures. The operation resulted in the death of Supreme Leader Ali Khamenei. Iran responded with missile attacks on U.S. bases in Qatar, the UAE, and Bahrain, and drone strikes on infrastructure in Saudi Arabia, Kuwait, and Dubai. Casualties include a dockworker and seven American service members.

This morning, Iran’s Assembly of Experts appointed Mojtaba Khamenei, son of the late Supreme Leader, as his successor, signaling continuity rather than change.

After nine days of conflict, there is no sign of de-escalation.

Global Supply Chains Under Pressure

While the headlines focus on the war itself, the real story is the disruption to the unseen infrastructure of the global economy—shipping routes, insurance, fertilizer contracts, and airfreight corridors. These systems are breaking down, and the repercussions will be felt for months, especially by those not involved in decision-making.

The Strait of Hormuz: A Critical Bottleneck

The Strait of Hormuz, just 21 miles wide at its narrowest, is a passage for about 20% of global oil—nearly 21 million barrels daily. It also handles significant volumes of liquefied natural gas, a third of seaborne fertilizer exports, and substantial container traffic connecting Asia, Europe, and the Middle East.

Currently, the strait is effectively closed. Iran’s Revolutionary Guard has declared it off-limits to allied shipping, even though no physical barrier has been placed.

Insurance and Shipping Standstill

Protection and indemnity insurers have withdrawn coverage, rendering war-risk premiums meaningless. Without insurance, shipowners refuse to transit the strait—not because of missiles, but due to risk calculations.

Tanker traffic has plummeted from 138 vessels per day to just two. Over 150 tankers are anchored in the Gulf, and 147 container ships are trapped, unable to exit.

Major container lines like Maersk, CMA CGM, Hapag-Lloyd, and MSC have suspended operations. Maersk halted two key services connecting the Middle East to Asia and Europe, stopping all trans-Suez sailings.

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The Houthis have resumed attacks in the Red Sea, closing both major maritime chokepoints. Ships now must detour around the Cape of Good Hope, adding 10–14 days to each journey. This dual crisis is unprecedented in modern shipping.

Economic Impact in Numbers

LNG shipping rates have skyrocketed from $40,000 to $300,000 per day—a 650% jump in less than a week. Asian spot LNG prices have doubled.

Qatar halted all LNG production at its Ras Laffan hub after Iranian drone strikes, declaring force majeure. Qatar and the UAE supply about 20% of global LNG, with 85% of Qatar’s exports going to Asia.

Countries like China, India, Japan, South Korea, and Taiwan are scrambling for alternative supplies at much higher prices, on ships that now cost seven times more to charter.

European wholesale gas prices rose over 50% in a single day, the largest jump since the Russia-Ukraine conflict in 2022. The Asian LNG premium over European prices reached multi-year highs, as traders redirected supply to Asia.

Energy Aspects director Amrita Sen summed it up: “There’s no spare capacity in the LNG market.”

And this is just the gas sector.

The Oil Shock Returns

Crude oil prices have surged by roughly 50% since February 28. Brent, previously around $70 per barrel, reached $119 overnight. WTI climbed from $67 to over $115.

Iraq, OPEC’s second-largest producer, saw output from its main southern oilfields drop by 70%—from 4.3 million to 1.3 million barrels per day—due to storage constraints.

Kuwait has reduced production, and the UAE is managing offshore output carefully. Gulf nations are producing less because tankers cannot leave.

Israel targeted a major fuel storage facility near Tehran, and Saudi Arabia’s Ras Tanura refinery was hit twice. Drones also attacked Saudi Aramco’s Shaybah oil field.

Energy infrastructure is being destroyed, meaning supply won’t recover quickly even if shipping resumes.

Average U.S. gasoline prices rose from $3 to $3.45 per gallon in a week, according to AAA.

Energy Secretary Chris Wright claimed higher prices are “a small price to pay,” echoed by the President.

Goldman Sachs predicted $100 oil within five weeks; it happened in five days.

Hidden Effects: Fertilizer, Air Freight, and Insurance

Fertilizer

Modern agriculture relies on natural gas, specifically for ammonia production via the Haber-Bosch process. The Gulf states dominate global ammonia and urea output due to cheap gas.

A third of seaborne urea exports pass through the Strait of Hormuz. Natural gas for fertilizer plants in places like India also transits the strait.

Egyptian urea prices have jumped 35% this week. Sulphur prices are climbing, too.

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Nearly half of global sulphur trade originates in the Middle East, and the timing couldn’t be worse—spring planting season. Even small reductions in nitrogen fertilizer lead to significant drops in crop yields.

The impact won’t be immediate at grocery stores, but will be felt during the autumn harvest. Fertilizer shocks unfold slowly, unlike oil price changes, but their destabilizing effects may be greater.

Air Freight

Airspace is restricted across Iran, Iraq, Israel, Qatar, Kuwait, Bahrain, and parts of the UAE, Oman, and Saudi Arabia. The European Aviation Safety Agency advised operators to avoid these regions.

Over 20,000 flights have been grounded since February 28, stranding more than a million people. Global air cargo capacity has fallen by 18%, and the Asia-Middle East-Europe corridor has lost 40% of its capacity.

Middle Eastern carriers account for 13.6% of global air cargo, most of which is now offline. This affects not just consumer goods, but pharmaceuticals, electronics, perishables, and machine parts.

Backlogs are growing, warehouse space is limited, and rerouted flights burn more fuel—fuel now 30% more expensive than two weeks ago.

Maritime Insurance

Insurance is the unseen driver of the crisis. Before the strikes, war-risk insurance for a single transit of the Strait of Hormuz had already increased from 0.125% to 0.4% of a ship’s insured value—an extra $250,000 per transit for large crude carriers.

Insurers withdrew coverage entirely, and without P&I insurance, ships cannot legally operate.

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Even with U.S. Navy escorts, uninsured cargo is not accepted at destination ports. The global shipping network depends on underwriting that has now vanished in the Gulf.

War risk surcharges of $1,500–$3,500 per container are being applied to all shipments involving the Middle East. MSC declared “end of voyage” on stranded shipments, shifting costs to cargo owners. VLSFO fuel prices have surpassed $650 per metric ton, and marine gasoil broke $1,000 for the first time since late 2023.

All these expenses are passed down the supply chain.

Tariffs Compound the Crisis

This crisis is layered atop existing trade tensions. Two weeks before the conflict, the Supreme Court ruled that the President cannot impose tariffs under the International Emergency Economic Powers Act, dismantling Trump’s reciprocal tariff system.

Trump responded by invoking Section 122 of the Trade Act of 1974, imposing a new 10% global tariff, later raised to 15%. Accelerated investigations under Sections 232 and 301 were launched, targeting a wide range of goods.

Section 122 tariffs expire in 150 days unless extended by Congress—coinciding with midterm elections.

The result is a patchwork of tariffs layered onto a supply chain already rerouted around closed maritime chokepoints and burdened with war-risk surcharges.

FedEx has filed suit to recover payments made under the invalid tariffs. Senate Democrats proposed $175 billion in refunds to businesses. China’s Ministry of Commerce welcomed the ruling and maintained restrictions on rare earth exports.

Mark Zandi of Moody’s Analytics commented: “The U.S. is pulling away from the world, and the rest of the world is now pulling away from the U.S.”

The Inflation Domino Effect

Let’s follow the chain reaction: oil prices up 50%, LNG prices doubled, shipping rates up 650%, container surcharges in the thousands, air cargo capacity down nearly 20%, fertilizer prices rising at planting season, and tariffs adding 10–15% to import costs.

Before the conflict, U.S. core inflation was easing. The upcoming CPI report was expected to show a modest 0.2% monthly increase—but that data is already outdated.

Goldman Sachs estimated that sustained high oil prices could push U.S. inflation from 2.4% in January to 3% by year’s end. Capital Economics predicted a half-point rise for most Asian economies. The EU, already at 2%, could see a full percentage point added.

These forecasts assume the strait reopens soon, which is unlikely.

The Federal Reserve is monitoring the situation. New York Fed president John Williams said the war would affect near-term inflation. Minneapolis Fed president Neel Kashkari, who had anticipated a rate cut, is now less certain. Former Treasury Secretary Janet Yellen warned tariffs alone could push inflation to 3%, and now an energy shock is compounding the problem.

Mortgage rates, previously declining, have risen to 6.13% for a 30-year fixed loan. Higher expected inflation pushes up Treasury yields, which in turn raise mortgage rates, making homeownership less accessible.

Every $10 increase in oil prices adds about 25 cents to a gallon of gasoline. Delta Air Lines reported that a 1-cent rise in jet fuel costs the company $40 million annually; a 10% increase means an extra billion dollars.

China’s Economic Response

China’s February CPI was 1.3% year-over-year, the highest in three years. Gasoline prices rose 3.1%, and gold jewelry jumped 76.6%. Factory-gate prices are still declining, but at the slowest rate since mid-2024, as rising crude oil supports industrial costs. Analysts warn that a prolonged conflict could trigger stagflation—rising prices without economic growth. China’s property slump, U.S. tariff confusion, and Middle Eastern conflict combine for a bleak outlook.

Political Consequences

An NBC News poll found 62% of voters disapprove of Trump’s handling of inflation, up from 55% last year, while only 36% approve.

U.S. employers cut 92,000 jobs in February. The war is costing an estimated $1 billion daily, according to congressional sources.

Tim Pool, a MAGA-aligned YouTuber, remarked, “I oppose this war. The president will pay a political price,” noting that many regret their vote and liken the situation to the Bush era.

Just a week ago, Trump touted economic progress—lower gas prices, rising stocks, slowing inflation, and declining mortgage rates. Four days later, military action in Iran reversed much of that progress.

His Energy Secretary promised prices would drop in “weeks, certainly not months.” The White House proposed naval escorts for tankers and issued a sanctions waiver for Indian refiners to buy Russian oil. Political risk insurance was offered to tankers, but the shipping industry remains unconvinced. Oil prices continue to climb.

The G7 finance ministers held an emergency call to discuss releasing strategic petroleum reserves, echoing the response to Russia’s invasion of Ukraine in 2022. But this time, both the Strait of Hormuz and the Red Sea are closed, and global shipping and air freight are crippled. The shock is hitting every channel—energy, shipping, air cargo, insurance, fertilizer, financial markets, and trade policy—simultaneously.

A logistics consultant recently noted, “One week of direct impact can easily translate into more than a month of structural disruption.”

Even if the Strait reopens soon—which is unlikely—there are still 147 container ships stuck in the Gulf, port congestion spreading, carriers declaring force majeure, equipment stranded in the wrong hemisphere, voided contracts, and surcharges locked in. Insurance premiums won’t drop for months.

Qatar’s Energy Minister Saad al-Kaabi warned that if the war continues, Gulf producers may halt exports entirely, potentially collapsing global economies.

He’s not exaggerating. Removing a fifth of global energy supply from an already stretched system has dire consequences.

The LNG market had no spare capacity before the war. Container shipping was strained from years of Red Sea diversions. Air cargo operated with thin margins. Fertilizer prices were already high.

The world economy lacked a buffer and is now facing the most severe supply shock since the 1970s.

Chatham House highlighted that Qatar produces 40% of the world’s helium, crucial for semiconductor manufacturing—another chokepoint exposed by the conflict.

The war will eventually end, but inflationary damage is already accumulating, far beyond the “short-term pain” narrative.

Farmers unable to secure urea in March won’t plant the same crops in April. Airlines paying a billion extra in fuel won’t lower fares in June. Shippers who paid war-risk surcharges won’t get refunds. Homebuyers priced out by high mortgage rates won’t return at lower rates. These costs become entrenched, forming a new baseline.

Meanwhile, the President continues to call the economic pain a small price to pay, but 62% of voters disagree.

Further Reading from Oilprice.com

• Saudi Aramco Cuts Oil Output as Hormuz Crisis Chokes Exports
• Asia Outbids Other Regions for Fuel Cargoes as War Chokes Supply
• Why This War With Iran May Be Far Longer Than Markets Expect

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