Is the Iran war the worst thing that can happen to the global economy

We're not yet a week in but there's all sorts of implications that are already becoming clear for the global economy also different parts of the world from what's happening in Iran and you know just to kind of update on the various different events that have happened. What has been going on in the last few days is the kind of horror story that economists have been telling themselves for decades and decades about what is the worst single thing that can happen to the global economy. It's kind of happening right now. So the straits of Hormuz are effectively closed. I'll show you a chart on that in a second. You've got the world's biggest oil terminal that is basically down Ras Tanura in Saudi Arabia. You've got the world's biggest gas terminal Ras Lafan that is down as well all because of drone attacks from Iran. You've got tanker attacks all through the Gulf and particularly around the straits but including in the north end of the Persian Gulf. Like I say this is the kind of thing that scary scenarios built by economists have been talking about for years. But what's the impact. And this is where things get kind of interesting and nuanced because you might have thought with that happening the oil price would go crazy and it's certainly gone a lot higher. Look at that up by 15 percent in the last few days. But it hasn't gone up as much as the gas price. And here's where things get kind of interesting. So this is the gas price actually in the UK and that's up by 70 percent. And actually at one point you can see the lines just about come down. At one point it was up by 100 percent. So it doubled. So what is that difference between oil and gas. Well in part it's literally just a physical thing. It's quite hard to store gas. And so your kind of sensitivity to what's going on in the market is slightly greater. But to some extent it's also something else. So if you look for instance at the oil market it's quite well stocked at the moment. What do I mean by that. Well this is showing you demand for oil in recent years and then there's a kind of projection there. And then look at supply. So this red line here and you see supply recently has been running above demand. So there's quite a lot of oil flowing out there. And you know the corollary of that is that quite a lot of that has gone into storage. So stocks oil stocks every country around the world have some degree of oil storage easier to store like I say than it is gas. You can store gas but it's just a bit harder. But oil stocks have been rising in the run up to what's happening now in Iran. So there's a little bit of reassurance there that look for oil. You know we're kind of relatively well equipped as things go. However it should be said OK so this is oil stocks mostly outside the Middle East outside the Gulf. It's a totally different story if you're looking at oil stocks within the Middle East. Here oil stocks are kind of a problem. Different countries here. Now these are all oil producers so it's a different thing have a certain amount of leeway a certain amount of storage that they can put their oil into if they can't get it out. But it's not that much. So Iraq six days Kuwait 14 days the UAE 19 and so on and so forth. And why does this matter. OK we'll have a look at this. OK so most of these countries will be hoping to get that oil. This is what has always happened. You drill the oil you pump it out and you ship it onto tankers through the Straits of Hormuz. That's the way things work. But if you can't do that if you can't get the oil out then you have to do something. And you basically kind of exhaust all of that storage time. So in the case of Iraq six days and Kuwait not much more than after that period you have to do radical things like starting to shut down your production. And when you start shutting down production that's a real problem for oil facilities. Sometimes you can cause long term damage that basically means you're just not going to get as much oil out in the future. That's kind of what's happened in Venezuela recently. So there's real profound questions about how long this lasts and how long the Straits of Hormuz is essentially closed. And when I say essentially closed well as we know this talk about you know is it close isn't it close. Well this shows you tankers going in and out Straits of Hormuz in recent months. Attacks begin. Look at what happens to those flows. I mean it's basically closed. It's basically closed in profound you know pragmatic terms. And that has serious consequences you know that will kind of mount up the more time elapses. But as I was saying a second ago it's not just oil and gas. OK so obviously we focus a lot on oil and gas but there are products that are made from oil and gas that are also incredibly important. Think about like jet fuel kerosene. That is up by 52 percent and this is kind of a price actually measured in Singapore up by 52 percent. So flights are going to get more expensive. Basically right now they're going to be getting more expensive because that is an extraordinarily sharp increase. And why is that going up quite so quickly more quickly than oil is because it's really hard to store kerosene. So it's back to that pragmatic question about how much storage of this stuff do we actually have. Fertilizer. So a lot of fertilizer kind of getting 30 40 percent of the world's fertilizer that also comes from the Gulf. It passes through the Straits of Hormuz anticipating that the prices are up by 30 percent since January. And if you look at other things so you know this is rather more obscure but nonetheless you'll see pretty important. Helium. Who knew helium. Actually for the most part it is made in the process of kind of refining natural gas. And so a third of the world's helium comes from Qatar. Well that that's not happening right now. It's not being produced because Rosalind is down. So you're just not getting that one third of the world's helium. That is significant not just for party balloons for kids parties. If you want to run an MRI scanner you need helium because what's helium really good for is good for cooling cooling things down to kind of near absolute zero temperatures. That's exactly what you need for an MRI scanner because it needs to run these superconducting magnets. You can't do anything superconducting. You can't run quantum computers. You know the future of computing. You need helium for it. And a lot of that helium all of a sudden it's not available anymore. You see where this is going. All of these unexpected knock on consequences from what's happening in Iran at the moment and in the Gulf. Sulfuric acid again even more obscure I'm afraid. But a quarter of the world's sulfuric acid production that comes from the Gulf. And without sulfuric acid you can't make explosives. Without sulfuric you can't acid you can't refine things like copper. So all of a sudden copper prices are going up as a result. All these are likely to go up because the cost of refining it is going to go up too. So it's not just oil. It's not just gas. And also it's not just the things that are made within the Gulf that matter. I mean think about a place like Jebel Ali. This is one of the world's biggest container ports. It's just just outside of Dubai right there. And this is a place that has become central to global trade. A lot of trade coming from Europe kind of goes through Jebel Ali and then passes through to Singapore and elsewhere. It can't happen anymore. And it's even more profound for those who live within the Gulf because this was the main place that was receiving all the shipments of food and grain that can no longer easily pass through the Straits of Hormuz. So it's not just a problem for those of us who live outside the Gulf. It is a big problem maybe even bigger for those who live within the Gulf because you've got questions of whether you can actually get that stuff and you've got questions of what happens to the wider economy. A really good way of kind of illustrating this is thinking about the airports that you might have traveled via Dubai Airport. It wasn't that long ago that it was relatively small compared with the big beasts of the airport world. This is showing you the size of these airports. You've got Heathrow at the top there, Paris, Hong Kong, Frankfurt, Amsterdam. But look over time we're passing through from the 2000s to 2010. Over time look at how Dubai Airport overtook everyone and established itself as comfortably the world's biggest airport and remains that even today. But I mean I say today the statistics haven't yet been written but flights aren't happening. And so this is totally unprecedented to have the world's biggest airport all of a sudden down with the rest of the flights around the world continuing. What that does to the economy in Dubai is a question we've barely begun to fathom. As is another one. Look at this. This is showing you the population. Well it's the population of Iceland. This is just as a benchmark. In the 1960s and the early 1970s the UAE obviously which Dubai is at the heart of was around about the same size as Iceland in terms of its population. But look at what happened next. This is pretty extraordinary. It's one of the most breakneck rises in population that we've seen in any country ever, let alone one that's kind of quasi-developed economy like the UAE. Just crazy. But the background to that story is that most of that population growth has been immigrants. And if you look here, these bars are just showing you, we've got the UK over there, the percentage of the population that is non-native, so immigrant population not born in the country. And I'll just highlight the Gulf countries here. You can see the pattern, can't you? These are places, whether it's Saudi Arabia, Oman, particularly Bahrain, Kuwait, UAE, Qatar, which are outside, incredibly dependent on immigrant labour just to get their economies going. Raising the question, what if those immigrants kind of feel they don't want to be there anymore because they are so nervous about living there? That is a profound question. It's one we're kind of only beginning to try and kind of work our way through. But it just raises the fact that what's happening in Iran isn't just about oil, it's not just about gas. I mean it certainly is and there are going to be knock-on consequences from that. It's not even just about obscure things like helium and sulfuric acid. It's also about the deeper fate of the entire Gulf region.