Former UK Prime Minister Rishi Sunak said the ongoing Middle East crisis caused the fourth supply shock this decade, with Covid being the first, the Russia-Ukraine war, and China’s restrictions on rare earth export being the second and the third. Writing for The Times, the former UK PM said Britain must build up resilience as the UK has very limited strategic gas reserves which he said are barely enough for a few days of supply.
“The assumption was that Iran wouldn’t ultimately shut the Strait of Hormuz because well over three quarters of its revenue comes from products exported through its waters. But the Iranian regime is trying to close it to all but friendly traffic.
They are attempting to put a dagger to the throat of the world economy, to make this conflict too costly to sustain,” Sunak wrote.
“The consequences if the Americans can’t keep the Strait open will be profound, and not just economically. A key role of the global hegemon is to keep international shipping lanes open. It is what the Royal Navy did in the 19th and early 20th centuries and what the US has done since 1945. One of the reasons we joined the Americans in bombing the Houthis when I was prime minister was to maintain freedom of navigation through the Bab-el-Mandeb Strait.
If the US cannot keep the Strait of Hormuz open, it will be another puncture in the Pax Americana,” he wrote.
The impact of the closure of the Strait of Hormuz will ripple far beyond oil. “Already, restaurants in Bangalore are shut because of a lack of gas; South Korean electronics manufacturers are worried that they will soon run out of helium—a key ingredient in chip manufacturing; and farmers here at home are threatened by rising fertiliser prices. They are currently applying the first round of nitrogen to winter wheat and winter barley. The sowing of spring barley, one of our major crops, is also under way. This spike in fertiliser prices could not be worse timed,” he wrote.
Sunak wrote that Covid taught companies and governments to be aware of supply chain vulnerabilities and now there are encouraging signs that firms have learnt this lesson. “One company, which would be vital in any European war, insists on its suppliers not using inputs from Taiwan because it is at risk of being attacked, nor China because it will be the aggressor, and not the US because of its current unpredictability. It requires suppliers that source from these places to hold a year’s stockpile. A leading defence firm has used its increased orders to fund the purchase of a four-year store of rare earths as insurance against any wartime interruption,” he wrote.
The events in the Stait of Hormuz should remind everyone of the risk of an even bigger supply shock, Taiwan. “Deterring any conflict in the Taiwan Strait is essential. But there is a real danger that China looks at how the US has already used more than a year’s supply of Tomahawk missiles and Patriot interceptors in this war, and senses opportunity. Even before this conflict, analysts believed that the US would run out of long-range, precision munitions by the end of the first week of fighting over Taiwan,” he wrote.
“We must accelerate munitions production. It is dangerous that it will take Lockheed Martin seven years to quadruple production of Patriot interceptors. If we do not want the West to decline and fall, it is time to remember what the Romans taught us: si vis pacem para bellum (If you want peace, prepare for war),” he added.
