Focus
This paper studies how disruptions to maritime traffic in the Strait of Hormuz affect the global economy and finance. I use real-time data on ships passing through major maritime chokepoints around the world to build a measure of unusual traffic changes at each chokepoint after accounting for normal patterns and ship size. I then separate supply- and demand-driven changes using information from oil market announcements. With these measures, I am able to trace what happens to energy and fertiliser prices, global industrial production, global consumer prices and bond spreads for companies and governments in both advanced and emerging market economies.
Contribution
The Strait of Hormuz carries a large share of the world’s oil and gas. When traffic there gets disrupted, energy supply to the world can suffer. Most studies track oil prices or broad “risk” indicators to assess such shocks. I instead measure the disruption itself with observed ship movements at the chokepoint. This offers a timely and direct signal of stress. I show that Hormuz traffic acts as a barometer of global supply conditions. My approach adds information beyond oil price shocks and provides a better understanding of real-world outcomes in growth, inflation and credit markets.
Findings
When traffic in the Strait of Hormuz is disrupted, energy and fertiliser prices rise, and the increase is larger when the drop in traffic is supply-driven. Global industrial production then weakens while global consumer prices increase. These effects start to show after four to six months and can last up to a year. Credit conditions also tighten. Yield spreads on company bonds rise, especially for high-yield issuers, and spreads on emerging market government bonds widen. The risks are skewed to the upside: the higher the inflation or spreads are to begin with, the larger the increase after a disruption to traffic in the Strait of Hormuz. Traffic at some other chokepoints, such as the Strait of Malacca and the Strait of Gibraltar, can also matter at times. Yet the Strait of Hormuz stands out. Its traffic provides the clearest and most consistent signal of global supply stress and of the stagflationary mix of lower growth, higher prices and tighter financial conditions.
Abstract
The conflict in the Middle East and the subsequent disruption of traffic in the Strait of Hormuz have triggered an unprecedented shock to the global economy. Using historical data from the IMF/University of Oxford Portwatch database on maritime traffic, this paper empirically examines some of the potential economic and financial consequences of disruptions to traffic in the Strait of Hormuz. The analysis highlights the role of this chokepoint as a global supply indicator, with traffic disruptions acting as a global stagflation-inducing force. While commodity prices — especially energy prices — tend to increase after an adverse shock to traffic in the Strait of Hormuz, such negative shocks are systematically followed by a combination of lower global output and higher global consumer prices. In addition, negative shocks to traffic in the Strait of Hormuz tighten financial conditions, with spreads on both advanced economies (AEs) corporate bonds and emerging market economies (EMEs) sovereign bonds widening significantly. These findings underscore the Strait of Hormuz’s critical role in the global economy and highlight avenues for future research on chokepoint shocks.