It's not just oil. Here comes Hormuz inflation. - Politico

Illustration by Claudine Hellmuth/POLITICO (source images via Getty and iStock)

The war with Iran is driving up more than gasoline prices. It is beginning to hit semiconductors, medical imaging, backyard gardens and even children’s party balloons.

While much of the world is focused on how Iran’s essential closure of the Strait of Hormuz is damaging global energy markets, other key industries risk getting hit by similar price inflation. That’s because Hormuz is also a major shipping route for helium and fertilizer, which both affect a wide sector of the economy and are now experiencing price spikes as ships bottleneck on both sides of the strait.

“The longer it goes on, the more serious it’s going to get,” said Rich Gottwald, CEO of the Compressed Gas Association.

The expected price increases come as the Trump administration attempts to assuage voters’ concerns over cost-of-living, and Republicans worry that the war’s ripple effects will hamstring their prospects in November.

Iran has now effectively blocked ships from crossing the strait, through which 20 percent of the world’s daily oil and natural gas supply travels, inflicting pain on global energy markets by driving the price of crude to roughly $100 a barrel. Iran’s new leader, Ayatollah Mojtaba Khamenei, indicated Thursday that won’t change soon, pledging that “the lever of blocking the Strait of Hormuz must also continue to be used.”

About a third of both the global helium and fertilizer supply passes through Hormuz. Half of the global supply of urea – a nitrogen-based fertilizer– and almost a third of the ammonia supply run through the straits, according to the American Farm Bureau Federation.

Prices are already spiking since global supplies are taking a hit right as many agricultural producers are beginning their Spring plants. Urea prices have jumped 30 percent since the Trump administration began bombing Iran, according to the Fertilizer Institute.

Meanwhile, helium spot prices have doubled since the war began, said Anish Kapadia, CEO of market research firm AKAP Energy. Qatar’s state-run energy firm halted liquified natural gas production in the first days of the war and it is estimated it will take months to get it back up and running. The nation is a major producer of helium, which is a byproduct of liquefied natural gas production.

The Trump administration is beginning to acknowledge the downstream effects. Agriculture Secretary Brooke Rollins on Friday said “the president is very aware of these challenges and these issues” and promised relief for farmers was coming soon.

“We are very close to having an announcement on some solutions, on what that looks like. We’re looking at every potential avenue to keep the fertilizer costs down as these farmers are going into planting season.”

A White House spokesperson declined to answer questions about the impact on the helium market, but acknowledged a plan for the agricultural industry and suggested the president has lowered such input costs.

“President Trump has stood up for our farmers more than anyone, including by lowering input costs, establishing Farmer Bridge Assistant payments, negotiating fairer trade deals, ending the death tax, and more,” White House spokesperson Anna Kelly said in a statement. “As the President said, these impacts are temporary, and the best is yet to come for our great farmers.”

Semiconductor manufacturers heavily rely on helium to prevent certain chemical reactions in production, Gottwald said. MRIs also need helium to cool the magnets the machines need to function. Welding is also heavily reliant on helium. Meanwhile, party balloons account for about 10 to 20 percent of the market.

Interruptions or price spikes to semiconductor manufacturing could hit global markets for everything from computers to smartphones to vehicles to medical equipment.

“A lot of the world doesn’t run without semiconductors and you can’t make semiconductors without helium, period,” Gottwald said. “That will probably add pressure from a political perspective from all different countries around the world.”

The losses are already beginning to mount.

Pressure on the helium market won’t deflate for months because Qatar’s natural gas production facilities were damaged in the fighting, said Anish Kapadia, CEO of market research firm AKAP Energy. After the strait is reopened, he said, it would then take a while to put back into place specialized transportation containers, which are chilled to a temperature close to zero Kelvin, roughly negative-460 degrees Fahrenheit. So, even if the Strait of Hormuz were to reopen today, it would take two months for the market to return to normal, he said.

This article is republished through the USVI News affiliate desk. Reporting, analysis, and viewpoints are those of the original pub...