Limiting damage from the Straight of Hormuz closure

For the past two months a critical situation has been unfolding in West Asia, following the American and Israeli attack on Iran. Today I want to talk about some of the consequences of the conflict, and give some ideas what small(er) businesses and individuals can do to mitigate it.

Shortly after the conflict started I included a link to a Substack page, that went over a range of impacts that closing the Straight of Hormuz could result in. I still recommend giving it a look, at least to get an idea of the scope of the problem and some of the less obvious impacts. The main point that to take from it is this: petrochemicals are important in almost every production process, and disruptions have cascading impacts.

This video, showing an interview with Mike Adams (investigative journalist and consumer health advocate) - while I don’t agree with everything he says, I think his overall point is sobering and spot on.

Foundations

The removal of ~30% of crude oil might not seem like a catastrophic event - after all 70% is still available, right?

There are a couple of problems with that.

First, the crude oil that is available isn’t the same as what has been lost. Each region has a unique blend of chemicals which leads to a different mix of end products when it’s refined. While it’s possible to blend different types of crude to get a similar result, making the switch long and complex to do - often taking a half year or more to complete. That makes refineries reluctant to go through the expense unless there is a guarantee that it will pay off. So we shouldn’t expect any significant changes on this front in the foreseeable future.

Two areas which seem to be most at risk directly are: diesel and jet fuel (kerosene) - which will disrupt transportation across the board. Another important refinery product that is already being impacted is naphtha, which is a key component for many plastics, including food grade.

Second, the most important impact isn’t directly tied to oil - it’s urea. Urea is the basis of modern fertilizer, and is made from natural gas - and a plant producing ~30% of the worlds supply was significantly damaged, with repairs expected to take years. This is something that can’t be replaced, and which has a direct impact on food production. It might not be a 1:1 ratio, but it’s close enough to raise alarms for a worldwide famine at the end of 2026. Experts believe that this years’ El Nino will be the strongest in over 100 years, which will put significant pressure on farmers, noticeably lowering production on its own - and compounding risk.

Third, all of the other secondary impacts will create constraints across the board. Reduced Helium will force prioritization and raising prices in electronics production, impacting everything with a digital component. Reduced sulfur will impact resource extraction, a major aluminum production source was in West Asia which has also become unavailable. Lastly, a key ingredient for plastics has gone down significantly. Just take a moment to consider the role plastics play in your life, and go back to foods - what amount of the food you buy is wrapped in plastic?

Looking at the first point, the closest parallel from recent history is the 2020 supply chain disruption. Global shipping was impacted, raising costs, randomly making items unavailable, and creating ripples of disruption across different countries and lines of business. But at the time, it was just a matter of not having bandwidth to load/unload container ships. Now it will be a combination of not having products, and not having the ability to move them, or having costs that are multiples of what they were at the start of the year.

The Future

I think that the 2020 logistics problems was a sneak peek at what the future has to hold, both from the current crisis, and from rising instability with environmental degradation.

For decades the world moved toward “Just In Time” (JIT) logistics. This is when you, as a factory, don’t maintain stockpiles of necessary ingredients beyond a very low level - instead you rely on constant deliveries that come in just as you need them. This works great as long as the whole system is functioning well, or there is at least enough slack/capacity to route around localized problems. It fails catastrophically when there is a widespread problem - which could be fuel shortages or localized but widespread disruptions.

The trend towards more severe, and more common weather events, combined with broader environmental impacts like rising sea levels gives every indication that within 1-2 decades, logistics as they were last year will be difficult to maintain.

Without root-cause actions to mitigate the worst of the current energy shortfall, and the effects of environmental damage that is looming on the horizon, the short-term impact will be a move away from JIT. Necessity will demand that businesses and societies as a whole create stockpiles of critical materials to allow them to continue to function with less predictable and reliable international (or even long-distance) trade. On a longer timescale, I expect a level of autarky (self-sufficiency in production of the goods necessary for a society to continue) will become common in regional networks, countries, and even metro areas.

The Present (take away)

What can be done to try and reduce the damage?

Unfortunately, there are limited things a small to mid-sized business can do to substantively improve the situation. But there are some steps that can be taken to reduce the impact.

• wherever possible encourage work-from-home
• when work-from-home isn’t possible, encourage and support mass transit use, carpooling, and/or bike commuting
• take an inventory of the inputs that are necessary to continue business, and determine their exposure to the current crisis
  • where there is a higher risk (eg. PCB substrate), try to secure a backlog and house it locally
  • if unable to create a stockpile, investigate alternatives - emphasizing long-term sustainability/reliability of access
• take the initiative and implement non fossil fuel based energy sources: the cost of solar has gone down significantly, and new battery technologies such as sodium-ion are coming into production
• review current and upcoming initiatives - hard decisions may be needed about what actually helps maintain operations
• connect with other businesses with similar interests or supply needs, and work towards building local networks that advocate for local resilience

For an individual, the options seem to be a little bit different though there is some overlap.

• get involved locally to build and advocate for local resilience (anything from community gardens, to regional renewable energy)
• advocate for work-from-home, and/or take the bus/carpool/bike
• start a garden and grow whatever you can - there are a lot of resources covering things like square-foot and container gardening
• consider ensuring you have a well-stocked pantry with shelf-stable staples
• contact your government representative and express your concern about the impact on food and fuel security, and actively hold them to account for what happens

Photo credit: Photo by Christian Holzinger on Unsplash