Istanbul Bilgi University Department of Economics Lecturer Prof. Dr. Erhan Aslanoğlu stated that South Korea, China, India and Japan, which can be called the factories of the world, receive 80 percent of the energy passing through the Strait of Hormuz and said, “Therefore, these countries seem to be candidates for experiencing and causing problems on the supply side to the extent that they cannot provide energy input.” he said.
The Middle East, the heart of global energy supply, is experiencing one of the most severe tests in its history with the war environment that started with the attacks on Iran by the USA and Israel on February 28 and resulted from Iran’s retaliation.
The region has also become the center of a multi-layered tremor felt in the veins of the global economy.
World stock markets, whose total value was 157.5 trillion dollars in the first month of the war, decreased to 143.5 trillion dollars as of March 30.
This loss of approximately 14 trillion dollars revealed not only the erosion of investor confidence, but also how widely the economic repercussions of the war spread.
The most critical dimension of the crisis emerged in energy supply. Serious disruptions and increased security risks in the passage of oil, LNG and commercial ships in the Strait of Hormuz, which carries approximately 20 percent of the world’s daily oil demand, directly disrupted the global energy flow.
While the barrel price of Brent oil rose above 100 dollars due to the developments, the supply constraint also increased the price pressure on other oil products, especially jet fuel.
In this process, concerns about product supply were not the only factor determining pricing in the markets. Increasing energy costs, rising freight charges and rising insurance costs due to war risk put the entire production chain, especially agriculture, under pressure.
These cost increases, which spread to every stage of production, triggered a new cost wave in the global economy and brought new items to the agenda in the pricing regime.
“In real side pricing, oil and related products will affect transportation costs.”
Istanbul Bilgi University Department of Economics Lecturer Prof. Dr. Erhan Aslanoğlu, in his statement, said that the risk factor has come into play regarding the reflection of the increasing geopolitical tension on the global scale to the prices, but the effect of this is mostly observed in financial assets for now.
Aslanoğlu said:
“Of course, it is not wrong to say that a risk premium has come into play in the world’s pricing today. However, the risk premium is a situation that we can observe mostly in financial market parameters. For example, oil prices may contain a risk premium of 20-30 dollars even if the war ends. Gold prices had made a similar rise before February 28. The same rise may not always occur with the expectation that similar situations will occur again, such an increase may not be seen even if the war ends. Stock markets may not show a rapid rise either. However, in the real side pricing, oil and related products, transportation will affect costs.”
Stating that the main determining factor in product prices is still the supply-demand balance, Aslanoğlu stated that there was a supply-side shock in particular.
Reminding that the Strait of Hormuz, through which 20 percent of the world’s oil and natural gas passes, is likely to be closed, Aslanoğlu said:
“There is a closure of a region through which nitrogen-based fertilizer, 10 percent and 15 percent of the world’s aluminum, as well as 25-30 percent of the fertilizer pass. This creates serious pressure on the food and energy channel. South Korea, China, India and Japan, which we can call the factories of the world, receive 80 percent of the energy passing through the Strait of Hormuz. Therefore, these countries seem likely to experience problems on the supply side to the extent that they cannot provide energy input. Especially Hark “In the event of a possible attack on the island or the start of a land operation or a halt or disruption of Iran’s energy supply, the pressure on prices will largely come from supply-side shocks. In summary, there is a risk premium, but I think this is more evident in the financial market parameters.”
“The decrease in demand caused by the increase in oil prices will cause more harm than good.”
Prof. Dr. Aslanoğlu stated that the issue of closing the Strait of Hormuz and charging a toll is controversial in terms of sustainability, and underlined that the pricing resulting from this situation will be temporary.
Aslanoğlu said, “Although it seems that oil producing and energy selling countries may benefit from an increase in oil prices to 200-300 dollars in the short term, they also know that the decrease in demand that such a price level will create will bring them more harm than good. Therefore, such pricing or tolls may be temporary.” he said.
Stating that logistics and insurance companies can gain advantages in the short term due to risk premiums in this process, Aslanoğlu emphasized that in an environment where risks occur, insurance companies may also face serious difficulties.
Explaining that if energy prices continue to remain high in the world, even if there is a global recovery, it may cause both food and commodity prices to remain high, Aslanoğlu continued his words as follows:
“This situation suggests that some commodity-producing countries in Latin America and Africa and partially Middle Eastern countries may be more positively differentiated in this process. However, it is possible to say that they face more costs rather than the income they will gain, especially since the Middle Eastern countries face serious damage. Latin American countries stand out in this process as raw material producers. In general, I believe that energy and food producing countries may remain in a more advantageous position. In this context, the losing side may be greater in non-commodity producing and commodity-dependent importer countries.” appears.”
On the other hand, Aslanoğlu pointed out that the scale factor is also decisive for companies in this environment where risk and security premiums come to the fore, and stated that large-scale companies provide advantages in terms of risk management and liquidity.
Aslanoğlu stated that such crises generally make large companies more advantageous in terms of liquidity and risk management experience, and that small businesses experience more difficulties in such periods due to disruptions in liquidity flow.
