Give Diplomacy A Chance In Middle East

Back-channel negotiations held under the auspices of Pakistan had nudged both the US and Iran last week to agree to halt the war for at least two weeks, with prospects of enduring de-escalation for peace and normalcy in the region. This had given new hope towards the pursuit of peace at a time when war rhetoric and threat of all-out destruction had been at its climax with President Trump’s apocalyptic warning to annihilate Iran, the cradle of Persian civilization, in one flash. 

In this regard, Jacobin, a left-leaning US magazine, comments saying, ‘Trump’s announcement of a two-week ceasefire with Iran on Tuesday and coming negotiations for a permanent settlement of hostilities in Pakistan was a rare acknowledgment of reality by the US president’. There were hopes that hostilities would cease in the Middle East (ME) for long, giving way to the resumption of supplies and economic recovery. Countries across Europe, Asia, Africa, and the Gulf have welcomed the ceasefire agreement.  However, the Islamabad talks failed to hammer out a solution. US president Trump threatened to begin a blockade of the Strait of Hormuz to ensure that every ship has a safe passage in the Hormuz waters without paying illegal tolls to Iran.  

Global supply chains

Almost a month-long war in the Middle East had inflicted misery across the world. The war not only affected the countries in Europe, Asia, and Africa but also destroyed their ability to supply food and medicine to millions of people in need. The ME  war revolved around the issue of the Strait closure by Iran, which ruptured the global supply chains, halting the transshipment of fuels, goods, and materials across Asia, Europe, and Africa.  Following the cessation of hostilities, Iran has started to levy tolls and let the ships pass through the strait, even though President Trump is not happy with the Iranian move. It may therefore take time to ensure that the worsened situation gets fully normal and the supply rupture is restored to deliver supplies. 

The Strait of Hormuz is a narrow but extremely important sea passage located between Iran to the north and Oman to the south. It connects the Persian Gulf with the Gulf of Oman, and ultimately the Arabian Sea. Around 20–25 per cent of the world’s oil supply passes through it daily. Major oil exporters like Saudi Arabia, Iraq, Kuwait, and the United Arab Emirates depend on it to send oil to global markets. At its narrowest point, it is only about 33 km wide, with shipping lanes even narrower. This makes it a chokepoint—easy to control, monitor, or block. The Strait is heavily influenced by Iran, which has repeatedly threatened and selectively closed it during conflicts. The control over the Strait is tantamount to control over a key global trade artery. 

The Strait is thus a “narrow gate” for the world’s energy supply. Whoever influences this gate has significant power over global economics and geopolitics. Every day that the Strait remains closed brings the world economy closer to a crisis. While the closure has acutely affected oil and gas supplies and prices, it could soon send convulsions through supply chains for other commodities, such as plastics and fertilisers, foundational to the global economy and food supplies. 

If the closure persists for even a few more months, it could become the single-largest and most consequential energy and supply chain disruption in modern history, all but ensuring a global period of stagflation. It will have a consequential geopolitical fallout amid outages in the petrochemical complex across Asia and the Middle East. The direct and second-order consequences could reverberate through petrochemical markets with major economic and geopolitical implications. In the upstream segment, the Middle East normally supplies about thirty percent of global seaborne exports of liquefied petroleum gas (LPG), which can be used for petrochemicals feedstock.

Joseph Webster, a senior fellow at the Atlantic Council’s Global Energy Centre and the Indo-Pacific Security Initiative, argues that apart from the upstream outage, downstream facilities in East Asia could face closure due to insufficient electricity, while Middle East petrochemical export facilities are facing massive disruptions. South Korea, Taiwan, and Japan hold significant petrochemical export capacity. But petrochemical plants are highly electricity-intensive, and powering the electricity grids of these East Asian democracies relies heavily on a now severely constricted LNG market. Accordingly, if Middle East LNG production outages force these countries to ration electricity, they could choose to curtail certain petrochemical products in favour of higher priority use cases for LNG, such as air conditioning or the manufacturing of semiconductors or high bandwidth memory for artificial intelligence (AI) supply chains, writes Webster. 

Enduring peace 

Not only has the closure interrupted global energy trade, but it has also suspended the movement of fertiliser covering roughly 30 per cent of globally traded ammonia-based nitrogen fertiliser that is vital before planting season. While the United States is one of the largest fertilizer producers, it relies on ammonia imports to lower costs and meet demand. Although US ammonia imports do not primarily route through the Strait of Hormuz, the closure constricts global supply, driving up prices that US markets cannot escape. The US will feel the economic impact of rising input costs on multiple fronts. 

When the cost of producing crops increases, farmers and food processors will pass those expenses through the supply chain, directly increasing the final price consumers pay for goods. Farmers may also be less incentivised to grow nitrogen-intensive crops, such as corn. This could also have cost implications for livestock feed, and thus meat and dairy products for consumers. Disrupted fertiliser supply chains hold important geopolitical consequences. It is anticipated that the Islamabad dialogue between Iran and the US would be instrumental in resolving key issues to herald an enduring peace in the Middle East.

(The author is presently associated with Policy Research Institute (PRI) as a senior research fellow.  rijalmukti@gmail.com