Strait of Hormuz: Iran blockade could affect fuel and food prices in Brazil

The price of oil is becoming a global concern with the closure of the Strait of Hormuz , a strategic point between the Persian Gulf and Oman for the passage of almost a third of the world's oil. The total blockade of the canal by Iran , if confirmed, would have a medium and long-term impact on the price of fuel and food in Brazil, according to experts interviewed by Terra .

On Sunday, the 22nd, the Persian parliament approved the blockade of the maritime corridor after the United States attacks on Iran's nuclear facilities . The final decision is up to the Supreme National Security Council and Ayatollah Ali Khamenei for the measure to come into effect. Iran is the seventh largest oil producer in the world.

“The price of gasoline and other fuels in Brazil is directly impacted by the closure of the Strait of Hormuz , even though the country is partially self-sufficient in oil production,” warns João Alfredo Nyegray, professor of International Business and Geopolitics at the Pontifical Catholic University of Paraná (PUCPR).

The expert points out two factors that could affect the price of fuel in the domestic market due to the closure of the canal. The first is that Brazil is part of the global oil market, whose prices are quoted in dollars based on international references for the barrel of Brent and WTI. With the blockage of the Strait, the global supply of oil is restricted, raising international prices.

The second factor is that Petrobras stopped adopting an international price parity (PPI) policy some time ago, in which the price of fuel follows fluctuations in the price of a barrel of oil and the exchange rate. Therefore, any increase in the international price of oil or devaluation of the real against the dollar could result in losses for the state-owned company, which may be forced to adjust prices in the domestic market.

André Senna Duarte, professor of Economics at PUC-RJ, believes that given Iran's relative weakness compared to other countries, the country will not be able to keep the strait closed for long. Therefore, if it remains closed for a short time, there should be no significant impact on the domestic market.

“The Strait is essential for the flow of oil in the world. Its blockage is something that could have a significant impact on the global economy. However, Iran alone, as is the case, is unlikely to be able to keep the strait closed for long, given the enormous opposition from many countries to an event like this,” assesses Senna Duarte.

José Niemeyer, professor of international relations at Ibmec-RJ, says that the closure of the Strait is a very serious matter that affects not only the price of fuel, but also inflation and the Brazilian economy as a whole. “In addition to directly changing the price of gasoline in Brazil in the medium term, it will make freight more expensive, with the prospect of rising inflation.”

More expensive food, freight and tickets

João Alfredo Nyegray states that industrial sectors that depend on transportation, logistics and petroleum-based fertilizers may also suffer inflationary pressures, generating indirect effects on the prices of food, freight and airfares. “This is what we call the cascade effect,” he emphasizes.

The Strait of Hormuz accounts for approximately 20% of the crude oil traded globally, according to the US Energy Information Administration (EIA, 2023) and the International Energy Agency (IEA). This corresponds to a daily volume of between 17.8 and 21 million barrels of oil.

“The closure, therefore, represents a bottleneck of colossal proportions in the global energy chain, directly affecting importing countries in Asia (China, Japan, South Korea and India), Europe and Latin America. In terms of maritime energy trade, it is the most strategic choke point on the planet,” adds João Alfredo.

The biggest losers from the blockade of the Strait of Hormuz

• Countries highly dependent on oil imports from the Persian Gulf, such as India, China, Japan, South Korea and Singapore.
• Emerging and developing economies, such as Brazil, which are vulnerable to exchange rate volatility and imported inflation.
• Shipping companies, aviation and industrial sectors with high energy dependence.
• End consumers, who will face increases in the cost of living, especially in regions that do not have strategic oil stocks.

How important is the Strait of Hormuz for Iran and the world?

The Strait of Hormuz is the most important energy corridor on the planet. Located between Iran and Oman , just 33 km wide at its narrowest point and with shipping channels of 3 km in each direction, it connects the Persian Gulf to the Arabian Sea and the Indian Ocean.

For Iran, the Strait has extraordinary geopolitical and strategic value. Although it depends on it for its own exports, Iran geographically controls the northern shore of the Strait and has the naval and missile capabilities to temporarily block it, giving it regional bargaining power.

For the world, the strait is a “vital artery” of the global energy system, and its obstruction is tantamount to ischemia in the oil supply. Protecting this route is one of the central reasons for the American military presence in the region since the 1980s.