Second-Order Effects on the Global Economy from the Strait of Hormuz Disruption

Investing.com – According to Morgan Stanley’s analysis, the disruption of the Strait of Hormuz is beginning to impact sectors beyond the energy market. The secondary effects are threatening global supply chains, trade flows, and industrial output.

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While the immediate impact is a sharp rise in oil prices and tighter energy supplies, economists warn that the broader economic effects could be more lasting and widespread. These secondary effects stem from the Middle East’s key role not only in oil but also in critical industrial inputs related to global manufacturing.

The region is a major supplier of petrochemicals, fertilizers, and metals like aluminum, all deeply embedded in global production networks. As energy disruptions intensify, shortages and delays of these materials are emerging, driving up costs across industries from agriculture to construction and consumer goods.

Morgan Stanley estimates that billions of dollars in trade flows are at risk, especially aluminum and plastics, which are upstream inputs for many finished products. The fertilizer supply chain is also fragile, particularly nitrogen-based products heavily reliant on natural gas, potentially impacting global agricultural output.

The impacts are expected to be uneven across regions. Emerging markets like India, Brazil, and Turkey face the greatest risks due to their dependence on Middle Eastern imports of industrial inputs. Meanwhile, major developed economies such as Japan and parts of Europe also face risks because they rely on key materials from the region.

These secondary effects could persist even after the conflict ends. Even if oil flows return to normal, restoring industrial production and supply chains may take longer, as post-conflict efforts might prioritize energy exports over downstream manufacturing capacity.

Therefore, the economic shocks from the conflict could extend far beyond fuel prices, leading to higher inflation, trade disruptions, and a slowdown in global growth.

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