You know, I got ten minutes before my meeting and all these answers are pretty poor so I’ll give you a rundown.
About 20% of the world’s crude oil pre war flowed out of the gulf using tankers through the strait of Hormuz (SoH). Crude is not all created equal. Refineries have to be built to process different types of petroleum products and different grades. I’m not a chemist but a few examples are Venezuelan and Cuban crude. These have different particulates in them that make them much more expensive to process. The crude oil out of gulf states has “sweet crude” which refineries, particularly in the US are tuned to process. There are other petrochemicals produced and shipped out of the gulf as well. For example, Qatar produces something like 20% of the world’s natural gas and quite a lot of fertilizer byproducts come from this process as well.
It’s really quite complicated but simply: these extraction processes cannot be stopped and started on a dime. The refineries and plants take weeks to start. Furthermore, pipelines and alternative shipping routes are not exactly viable. Pipelines take decades to build and are vulnerable to missiles. They also need constant flow to function properly. Shipping through the red sea goes through the suez which has size limitations. Going around Africa also risks attack from Ansrah Allah and Yemen.
Ok. So what? 20% isn’t the end of the world, right? Prices go up 20% everyone suffers and blames Iran and they become a pariah, right?
No, not really. From my lay understanding of these refinements and logistics. First, energy is an inelastic good. There aren’t many consumers who will exit the market for energy even if the price skyrockets. A hospital cannot simply say “oh we won’t power our nicu incubators until prices come down”. And second, the petroleum products are substitutes in the refinement process. You can have diesel or you can have f22 fuel from that barrel of crude but not both. So the pain is felt at the bottom of the market–you’ve got to go to work and filling up your car is non negotiable but at a certain point it won’t make financial sense to do so. The US government is going to fuel those jets no matter the cost, though.
Energy and fertilizer are inputs into the global economy. There already wasn’t slack in the pipeline, so to speak. The repercussions are yet to be seen. The US has been dramatically drawing down it’s strategic oil reserves to keep refinement going but speculation is that the reserves will not hold out at the current rate of consumption over the next few months.
That being said, the affect on regular people on the ground in Iran? I mean. They’re getting bombed by the US. An existential global economic threat is being used to stop that bombing. So. Probably better for them.
You know, I got ten minutes before my meeting and all these answers are pretty poor so I’ll give you a rundown.
About 20% of the world’s crude oil pre war flowed out of the gulf using tankers through the strait of Hormuz (SoH). Crude is not all created equal. Refineries have to be built to process different types of petroleum products and different grades. I’m not a chemist but a few examples are Venezuelan and Cuban crude. These have different particulates in them that make them much more expensive to process. The crude oil out of gulf states has “sweet crude” which refineries, particularly in the US are tuned to process. There are other petrochemicals produced and shipped out of the gulf as well. For example, Qatar produces something like 20% of the world’s natural gas and quite a lot of fertilizer byproducts come from this process as well.
It’s really quite complicated but simply: these extraction processes cannot be stopped and started on a dime. The refineries and plants take weeks to start. Furthermore, pipelines and alternative shipping routes are not exactly viable. Pipelines take decades to build and are vulnerable to missiles. They also need constant flow to function properly. Shipping through the red sea goes through the suez which has size limitations. Going around Africa also risks attack from Ansrah Allah and Yemen.
Ok. So what? 20% isn’t the end of the world, right? Prices go up 20% everyone suffers and blames Iran and they become a pariah, right?
No, not really. From my lay understanding of these refinements and logistics. First, energy is an inelastic good. There aren’t many consumers who will exit the market for energy even if the price skyrockets. A hospital cannot simply say “oh we won’t power our nicu incubators until prices come down”. And second, the petroleum products are substitutes in the refinement process. You can have diesel or you can have f22 fuel from that barrel of crude but not both. So the pain is felt at the bottom of the market–you’ve got to go to work and filling up your car is non negotiable but at a certain point it won’t make financial sense to do so. The US government is going to fuel those jets no matter the cost, though.
Energy and fertilizer are inputs into the global economy. There already wasn’t slack in the pipeline, so to speak. The repercussions are yet to be seen. The US has been dramatically drawing down it’s strategic oil reserves to keep refinement going but speculation is that the reserves will not hold out at the current rate of consumption over the next few months.
That being said, the affect on regular people on the ground in Iran? I mean. They’re getting bombed by the US. An existential global economic threat is being used to stop that bombing. So. Probably better for them.