The president of the European Central Bank warns that the negative impacts of the Middle East conflict could last longer than expected.
In a new interview with The Economist, Christine Lagarde says people are underestimating the effects of the Strait of Hormuz’s closure on the global supply chain.
According to Lagarde, investors are not pricing in the risk of a long-term supply chain disruption.
“We are facing a real shock that is probably beyond what we can imagine at the moment…
Well, maybe they are overly optimistic and determined to stay optimistic in the hope that their positive scenario will materialize and we will be back to normal in a relatively short time, which is not what the technical experts are telling us in terms of capacity, extraction, refining and distribution, because too much has already been damaged and there is no way that it can be restored in a matter of months. Most people are actually talking about years.”
Lagarde notes that the AI buildout is particularly vulnerable because critical materials used in microchip production pass through the Strait.
“What I think might also happen, because we’ve experienced it, is that you understand the actual consequences gradually as you read through the facts, the supply chain consequences, the kind of raw materials that are critically important for a particular manufacturing [process].
I’ll give you an example. Helium, which transits through the Strait of Hormuz, is critically important for microchips. Well, unless you figured that out, you’re not certain that there will be instant or very relatively quick consequences on the cost of microchips because of the rarity that will result from not having available one of the raw materials.
And I think this is a crisis where we are learning almost bit by bit, day by day, what the actual consequences will be, what countries will be most affected, what commodities will be the most in demand.”
On top of oil, the crucial exports blocked by Hormuz closure include fertilizers, helium, petrochemical derivatives for medicines and sulphur for metal and batteries.
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