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For countries that import most of the crude they use, Dr. Sarma explains: “This translates into higher fuel and food inflation, widening current account deficits, and currency depreciation risks.”
A surge in insurance costs, freight rates and hedging expenses is also expected, and “sustained volatility” in the markets is almost guaranteed at this point.
None of the oil trade routes out there can provide a “real substitute” to the Strait of Hormuz, he adds.
“Any reliance on escorted convoys or partial rerouting will slow flows, inflate insurance premiums and embed a structural price premium into oil and LNG markets,” Dr. Sarma notes. “Global stakeholders should prepare for tighter supply, higher costs and prolonged volatility.”