Suddenly, Hormuz is Less Crucial Than It Was

Key Points:

• Renewed conflict between the US and Iran has escalated, with US bombings and Iranian drone attacks around the Strait of Hormuz, while Iran demands sovereignty over the strategic waterway, opposed by Donald Trump.
• Despite tensions, oil prices have not surged as expected due to alternative supply routes, increased production outside the Persian Gulf, reduced Chinese imports, and inventory drawdowns mitigating the impact of Strait disruptions.
• The effective price of oil to consumers remains high, driven by a global refining capacity shortage exacerbated by the Russia-Ukraine war, which has crippled Russian refinery output and limited refined petroleum product availability worldwide.
• This refining bottleneck limits the benefit of reopening the Strait of Hormuz, meaning that even if crude oil supplies increase, the global economy cannot efficiently convert it into gasoline and diesel, keeping fuel prices and inflation elevated.
• The author criticizes US policy as driven by Trump's personal ambitions, warning that the conflict and sanctions have worsened global economic conditions and that preserving the 2015 Iran nuclear deal would have been a better alternative.