The Strait of Hormuz Crisis: A Wake-Up Call for Economic Realism
The world is holding its breath as the Strait of Hormuz, a critical chokepoint for global energy supplies, remains in turmoil. But what’s truly alarming isn’t just the disruption itself—it’s the way economists and policymakers are responding to it. Personally, I think this crisis exposes a fatal flaw in how we think about the economy: our collective tendency to treat energy as an afterthought.
Let’s start with a joke that economists love to tell—about a priest, an engineer, and an economist stranded on an island. When faced with the problem of finding food, the economist famously quips, “Assume a fish.” It’s a funny jab at the profession’s reliance on abstract assumptions, but it’s also a perfect metaphor for how we’ve approached energy in economic theory. We assume it will always be there, affordable and abundant, when in reality, it’s the lifeblood of everything we do.
What makes this particularly fascinating is how economists often downplay the impact of energy shortages. Take the Strait of Hormuz crisis, for example. With nearly 20% of the world’s oil supply and a significant portion of global LNG exports passing through this narrow waterway, its closure is more than just a logistical hiccup. Yet, many economists are quick to dismiss the fallout, arguing that energy only accounts for a small fraction of GDP. In my opinion, this is where they go wrong.
Energy isn’t just another commodity—it’s the master resource. Without it, nothing else happens. Factories don’t run, goods don’t get shipped, and economies don’t grow. The correlation between energy use and economic activity is nearly perfect, yet we treat it as if it’s interchangeable with any other input. What this really suggests is that our economic models are built on a house of cards, where the foundation—energy—is taken for granted.
One thing that immediately stands out is the uneven impact of this crisis. While the U.S. might feel a pinch, countries like Taiwan, which relies on LNG for 42% of its electricity, are facing an existential threat. The semiconductor industry, a cornerstone of the global tech supply chain, is already under strain. What many people don’t realize is that this isn’t just about higher prices at the pump—it’s about the ripple effects across industries, from agriculture to aviation.
If you take a step back and think about it, the Strait of Hormuz crisis is a stress test for our just-in-time economy. We’ve built a system that thrives on efficiency but is utterly vulnerable to disruptions. The loss of 4.5% of the world’s energy supply might sound small, but when you consider the knock-on effects—rising fuel costs, curtailed production, and reduced consumer spending—it’s a recipe for recession, if not depression.
A detail that I find especially interesting is the role of helium, a byproduct of natural gas production. With one-third of the world’s helium supply now unavailable, industries from semiconductor manufacturing to healthcare are feeling the pinch. This raises a deeper question: How many other hidden dependencies do we have in our globalized economy?
From my perspective, this crisis is a wake-up call. We can’t keep assuming that energy will always be there when we need it. The risks of a fossil-fuel dependent economy are now staring us in the face, and the only way forward is to adapt. Whether that means diversifying energy sources, building resilience into supply chains, or rethinking our growth-at-all-costs mindset, one thing is clear: the old way of thinking isn’t cutting it anymore.
As the Strait of Hormuz remains closed, the world is getting a crash course in economic realism. We can’t just “assume a fish” anymore. The question is: Will we learn from this lesson before it’s too late?
