Complacency Prevails Despite the Growing Risk of Global Economic Contraction and War
Stock markets globally are near all-time highs; there are few signs of concern much less panic. The assumption: the economy will not be seriously impacted by this war.
Guest Post by Sylvia M. Demarest
The Facts-- Gulf Production
This short essay will provide production facts regarding energy and energy related products as well as details on the potential impacts from shortages of these products following the closure of the Strait of Hormuz by the war on Iran.
The war on Iran has now lasted 45 days, with no end in sight. The war has resulted in very little traffic passing through the Strait of Hormuz. Before the war, approximately 20–21 million barrels of oil, and related energy products, passed through the strait daily, accounting for approximately 20% of global consumption. Since the US and Russia produce most of the energy they consume, the importance of Middle East energy production to the rest of the world is much greater than 20%.
Saudi Arabia and the UAE are attempting to re-route oil in pipelines to avoid the strait. Even if these pipelines are able to operate at full capacity, this amounts to around 5-7 million barrels a day, leaving a gap of 14-15 million barrels per day to supply the global market.
It is physically impossible to replace this volume, which is greater than the US’s daily production of 13.5 million barrels. Before the war, the strait handled 20% to 25% of the world’s liquefied natural gas (LNG), primarily from Qatar and the UAE. Unlike oil, there are no bypass land routes for Qatari LNG which is now completely off the market because of damage caused by this war. The loss of Qatar’s production places the US in the position of a monopoly supplier of global LNG.
There are hundreds of ships and tankers stranded in the Persian Gulf along with 20,000 crew members. They are running low on food, water and medications. If and when they are able to exit, all these ships and tankers will also require diesel or fuel oil to exit and to navigate to their destination. Where will this diesel and fuel oil come from?
The Facts-- US Production
The United States produces approximately 13.6 million barrels of oil per day, as of 2026. The US is the largest oil and gas producer globally. However, the US consumes approximately 20.46 million barrels of oil per day (as of 2024 perhaps more today), making the US the highest oil-consuming country in the world. The United States imports approximately 6.2 million barrels of crude oil daily as of 2025. Meanwhile, the US exports 4.1 million barrels per day (b/d). The US also imports natural gas, fertilizer, uranium, and electricity. These imports are needed meet domestic demands. Before the war, these imports came from a variety of trading partners across the globe, including Canada, Mexico, Saudi Arabia, Iraq, and Colombia. Some of these imports are now unavailable. Bottom line, the U.S. is a net importer of crude oil, but a net exporter of refined petroleum products as will be discussed below.
As of January 2024, the U.S. petroleum refining capacity was 18.4 million barrels per day. There are 132 operating refineries across 30 states. The United States consumes approximately 46 billion gallons of diesel fuel annually. This figure reflects the total diesel fuel consumption across various sectors, including transportation and industry. The U.S. diesel production reached 5.153 million barrels per day as of December 2024, which translates to approximately 1.88 billion barrels per year. This marks the highest production level since early 2019. Despite this level of production, the U.S. still imports diesel to meet its demand, with Canada being the largest supplier. Despite significant domestic production, imports help ensure a steady supply and maintain efficiency in refining operations. What will happen to these imports as prices rise and diesel supplies plummet around the world?
What energy products does the US Import/export?
Natural gas exports: The US exports natural gas particularly in the form of liquefied natural gas (LNG). These exports have seen tremendous growth in recent years. In 2023, LNG exports made up approximately 26% of total U.S. energy exports. Key consumers include countries in both Europe and Asia. The US is the largest LNG exporter in the world. The US exports approximately 8.9 trillion cubic feet of natural gas annually which translates to 24.4 billion cubic feet per day. This gas is exported on ships owned by US LNG suppliers--which means they can be re-routed for higher prices. After Qatar’s LNG exports were eliminated following the Israeli strike on the Pars field, the US achieved a virtual monopoly on global natural gas sales.
Crude oil. Though U.S. domestic oil production has surged, the country still imports specific types of crude oil, particularly heavier grades that domestic refineries are optimized to process. For instance, over half of U.S. crude oil imports currently come from Canada, with additional supplies coming from Mexico and, before the war, from OPEC countries like Saudi Arabia. Dependence on foreign crude leaves the U.S. vulnerable to geopolitical disruptions in these regions, impacting fuel prices and energy security. This dependency was, at least partially, addressed by the takeover of Venezuelan oil production earlier this year. Venezuela produces mostly heavy crude.
Natural gas imports. Nearly all of the natural gas imported into the U.S. comes from Canada via pipeline systems, ensuring consistent supply during peak heating and cooling seasons. Any disruption could compromise this flow, redirecting these supplies would destabilize the market and cause price fluctuations.
Diesel: In 2022, U.S. refineries produced about 1.75 billion barrels (73.46 billion gallons) of ultra-low sulfur distillate i.e. ULSD. Total ULSD consumption in the United States for all uses was about 1.44 billion barrels (60.30 billion gallons). Although ULSD production was higher than ULSD consumption, the United States imported about 0.07 billion barrels (2.80 billion gallons) of ULSD, and about 72% of those imports were from Canada. In 2022, total ULSD imports were equal to about 5% of total ULSD consumption in the United States. The United States exported about 0.39 billion barrels (16.45 billion gallons) of ULSD in 2022. Prices of diesel in the US have risen to over $5.00 a gallon. This is catastrophic for farms, ranches, and food production.
Fertilizer: The US also imports nitrogen fertilizer, not a lot, but imports set the price, and prices have tripled. Higher fertilizer and diesel prices risk massive food inflation.
Other items: While the US produces its own ammonia, nitrogen, fertilizer and other chemicals with its own feedstock, this production is aided by Canadian and Venezuelan gas and is not presently sufficient to prevent shortages.
The impact
The amount of energy and energy products that have been removed from the global economy risks a global recession, and perhaps, a depression. There is also the added risk of food shortages and famine. The longer the war on Iran goes on and the Strait of Hormuz remains blocked, the worse the impact will be, yet there seems to be no urgency to settle this war.
Here’s how Professor Robert A. Pape describes our reality (I am paraphrasing); 20% of global oil flows through the Strait of Hormuz, not just oil, but the base layer of modern production: fuel, fertilizer, plastics, as discussed in detail below. He notes that what is important is how many ships get through the strait every day. Because if flows do not recover, the system will continue to tighten. The world is already experiencing price spikes. Once inventories run down, this stops being about price or expensive inputs and becomes about inputs being unavailable. Pape contends that within another 10 days, parts of the global economy will begin to experience actual shortages of critical goods. He notes: “markets are not ready for this.” The next step is economic contraction. This is when things start to break. Factories don’t slow because costs rise. They stop because materials are not available. 1973: ~7% supply disruption → shortages, rationing, industrial decline in under 90 days. Today’s shock is much larger. Today’s system is tighter. The impact will be seen in Asia first → Europe next → then global compression—then contraction. The U.S. will not be spared. Energy independence doesn’t protect a globally integrated economy. When supply chains seize, the shock transmits via trade reductions. Then the real shift hits, prices no longer determine outcomes, access does, once that flips, governments will start choosing winners and losers. By the time shortages show up in headlines, it’s already too late. That’s how these shocks work.
Given the importance of these issues, understanding the specific details of the shortages and their potential impacts is critical. Here is a summary of each item and its impacts:
OIL AND ENERGY - Brent crude oil prices surpassed $120 per barrel and could reach $150-$200 per barrel if closure continues - Gasoline prices in the US have already risen to nearly $4 per gallon - Jet fuel prices rising, affecting airline costs and ticket prices - US Strategic Petroleum Reserve drawdown of 172 million barrels as emergency measure - Risk of permanent damage to Gulf energy infrastructure extending supply disruption by years - Parts of the world’s largest LNG plant in Qatar sustained missile damage estimated to take up to five years to repair - Net daily oil shortfall of 14.5 to 16.5 million barrels per day despite pipeline bypass routes.
LUBRICANTS - Higher prices for industrial lubricants, motor oils, and metalworking fluids - Shortages of specialty lubricants relying on Gulf-origin sulfonate-based additive packages - Rising costs for fleet operators, manufacturers, and heavy industry - Tighter availability of base oil stocks used in domestic lubricant blending.
NAPHTHA - 24% reduction in global seaborne naphtha supply - Asian petrochemical plants bidding away US-origin naphtha, tightening domestic availability - Higher feedstock costs for US ethylene and propylene crackers - Cascading price increases across all naphtha-derived chemicals and materials.
SULFUR AND SULFURIC ACID - Near-total disruption of sulfur supply from Gulf states, which account for roughly 45% of global supply - Degraded military supply chains due to sulfur shortages affecting the US defense industrial base - Higher EV battery production costs due to sulfuric acid shortages affecting high-pressure acid leaching of nickel, cobalt, and copper - Tighter copper and nickel refining as sulfuric acid becomes scarce at processing hubs - Rising fertilizer prices particularly for MAP (monoammonium phosphate) and DAP (diammonium phosphate) phosphate fertilizers - Industrial slowdowns in copper belt processing and battery precursor refining - Higher costs across renewable energy storage manufacturing.
HELIUM - One-third of global helium supply offline due to Qatar’s production disruption - Helium distributors rationing deliveries as of early April 2026 - Risk of stored liquid helium evaporating in stranded containers after approximately six weeks - Hospital MRI operations threatened as liquid helium supplies for superconducting magnets tighten - Semiconductor fabrication plants facing cooling and process gas shortages - Fiber optic cable manufacturing disrupted due to helium process requirements - Aerospace and defense sector impacted including rocket propulsion systems - Rising costs for all helium-dependent electronics and precision manufacturing.
POLYMERS, PLASTICS, AND POLYETHYLENE - 85% of Middle East polyethylene exports transit the strait, driving global shortages and price spikes - Higher prices for food packaging across all grocery and consumer goods sectors - Automotive parts costs rising due to polymer and plastic resin supply tightening - Medical devices affected by shortages of high-grade plastic resins and polymer components - Construction materials including pipes, insulation, and sheeting facing price increases - Agriculture films used for mulching, greenhouse covers, and silage becoming more expensive - Consumer electronics enclosures and housings facing higher input costs - Monoethylene glycol shortages tightening supply of polyester fibers, packaging, and textiles - Asian buyers redirecting demand to US polymer suppliers, raising domestic prices - Methanol supply tightened, raising costs for resins, coatings, adhesives, and fuel blending.
FERTILIZERS AND AGRICULTURE - Urea prices at the New Orleans import hub surged 32% in a single week, from $516 to $683 per metric ton - Urea prices up 50% globally since the start of the crisis as of late March 2026 - Some US fertilizer prices rose more than 40% in the first month alone - 30% of globally traded fertilizer normally transits the strait, with no pipeline bypass available - Russia suspended exports of ammonium nitrate, removing a major alternative supply source - China blocked phosphate exports, removing 25% of global phosphate supply - Natural gas prices up as much as 70%, directly raising the cost of producing nitrogen fertilizer - Higher corn and soy prices as input costs rise across the Midwest farm belt - Reduced planted acres as farmers cut back on nitrogen-intensive crops due to cost - Elevated food prices across the supply chain for months to come due to planting season disruption - Risk of smaller 2026 harvest putting upward pressure on global grain prices - Food price inflation arriving several months after the initial energy shock, affecting all consumers - Downstream effects on livestock feed costs, processed food prices, and grocery bills.
ALUMINUM AND METALS - Gulf states account for roughly 20% of global raw aluminum exports and 9% of production - Rising input costs for US automotive, aerospace, and construction manufacturing - Over 150,000 tons of aluminum pulled from London Metal Exchange warehouses - Higher costs cascading into vehicles, aircraft components, and building materials/
SEMICONDUCTORS AND ELECTRONICS - Helium and sulfur shortages constraining chip fabrication processes - Semiconductor supply tightness raising costs for smartphones, vehicles, washing machines, and data centers - Risk of helium prices increasing ten-fold or more before meaningfully impacting chip cost to consumers - East Asian fab operators facing electricity shortages as LNG supply collapses, risking plant closures/
FOOD SUPPLY AND CONSUMER PRICES - US Department of Agriculture projected a 3.1% average food price increase using pre-war data, now likely understated - Grocery prices expected to rise across multiple categories as fertilizer, energy, and packaging costs compound - Higher fuel prices feeding into transportation and logistics costs for all food distribution - Speed and extent of food price pass-through varies by category but all sectors are exposed.
MACRO-ECONOMIC AND STRATEGIC - Crisis described as the largest supply disruption in the history of the global oil market - Risk of stagflation as inflation rises and economic growth slows simultaneously - Stock market declines globally and bond market sell-off already underway - Interest rate policy complicated as central banks weigh supply-side inflation against recession risk - China and Russia positioned to gain strategic influence over petrochemical and fertilizer supply chains - If petrochemical plant closures cascade in Asia, China could establish long-term chokepoints over key supply chains - Port congestion expected as rerouted vessels arrive in clusters, straining US inland logistics - Shipping insurance rates rising sharply, adding cost to all rerouted cargo - Empty container shortages tightening US export capacity as shipping lanes are reorganized - US defense industrial base facing near-total disruption of critical mineral inputs including sulfur.
Fuel oil and Diesel: The gulf regions refineries provided produced and exported millions of metric tons of diesel and fuel oil every year. Every one of those fuel tankers need diesel or fuel oil to operate.
Conclusion
Some believe that the US benefits from the closure of Hormuz and/or the physical the destruction of Middle Eastern oil/gas/fertilizer plants, because it increases the US monopoly on these resources and strengthens the US’s control over allies including Europe. In this sense, this crisis is a continuation of the US policy of controlling and dominating the global flow of energy, for example blowing up Nord stream II to force the EU to give up importing Russian gas to isolate and weaken Russia. Now Iran is the target including her energy supplies. In theory, once Iran is defeated and the US assumes control over Iranian energy, China will be the next target. How much longer can this go on without serious push back?
From this perspective, the energy shortages resulting from the war on Iran is seen as a “win” for the US given that the US is supposedly “energy independent” and will now be able to sell energy to the global market at extremely high prices.
I would caution against believing these assumptions and depending on the US coming out of this crisis unscathed. While it is true that the crisis will hit the US later than in Asia, the EU and the global south, the US economy and markets are clearly very vulnerable. This Substack has discussed the economic challenges behind this vulnerability to the kinds of economic shocks this war will produce if it goes on much longer.
I guess Trump recognizes the risk. Trump just set another deadline, this one 2-week for Iran to “make a deal”. Here we go again! I will address this and other issues in the next essay--hopefully be the end of this week.