The issue here is the escalation of the conflict, right? We don’t know how China will act. We know that at this moment he has condemned it and that it is likely that he will not intervene from a military point of view. There is a consequence here that China becomes increasingly isolated. Because Iran was a strategic partner. Iran, one of the biggest buyers of Iranian oil is China. China needs cheap Iranian oil, which it is buying cheaply, and if cut off it will delay its economic development. And therefore, we don’t know how China will behave in the face of all this
There is another question here that is more medium-long term, which is whether the regime actually has to go, right? And if another regime comes along that is more favorable to the West, this also raises problems for China itself. So we don’t know where this will end.
After the “internal shock” in Leiria, Portugal may be close to a new “external shock”. Economist Ricardo Ferraz guarantees that “there are risks and well-founded concerns”
About 5,000 kilometers from Iran, Portugal did not see, hear or suffer any damage caused by the US and Israeli attack in the early hours of Saturday. However, distance will not be able to halt the impact of yet another global conflict on the national economy and the lives of the Portuguese could be about to become more expensive, especially for those with credit.
Economist Ricardo Ferraz says that, for now, it is “impossible to quantify” the extent of the economic impact in Portugal, but it is possible to predict possible outcomes based on what has already happened in the past in that region.
“For now, there are immediate effects at a global level. We have the price of crude oil rising above 80 dollars and it is not out of the question that it could exceed 100 dollars. The price of natural gas is also already rising. The stock markets are in the red, which shows that investors are nervous”, says Ricardo Ferraz, warning: “If this problem is not resolved quickly, we could have major problems here for the world economy and, consequently, for the European and also for the Portuguese.”
Iran is among the world’s largest oil producers, but perhaps even more decisive for this eventual economic impact on a global scale are the 53.5 kilometers of sea that separate Iran from Oman and the United Arab Emirates. 20.1 million barrels of oil pass through the Strait of Hormuz per day or, put another way, every 24 hours 1.29 billion euros of oil pass through that channel. The problem is that, in these 48 hours, maritime traffic of oil tankers and cargo ships decreased by around 70% in the Strait of Hormuz, according to the .
Strait of Hormuz traffic drops sharply amid regional escalation
Vessel activity in the Strait of Hormuz has shifted materially following recent US strikes on Iran and the subsequent regional escalation. According to real-time traffic analysis, transits through the chokepoint…
— MarineTraffic (@MarineTraffic)
For Ricardo Ferraz, it is undeniable that “there are well-founded concerns” regarding instability in the region. The expert highlights that there have already been ships attacked by Iranian ammunition and this is a clear message from Tehran to the captains of the vessels. “This means that, in terms of insurance for ships and transported cargo, costs skyrocket, which immediately has an impact on prices”, he details.
“If there are constraints on maritime traffic or partial closure, there are problems for the various economies, including the Portuguese one, which is a small, open economy and leads as a rule”, he says.
The cascade of increases that will hit the Portuguese wallets will begin to be reflected in the gas station prices and, remembers Ricardo Ferraz, whenever “it intensifies or there is an escalation of tensions” there will be a new echo in fuel prices. The second replica of increases will be “a set of other goods”, as happened in the wake of the invasion of Ukraine, when “prices soared and were never the same again”. “There was an inflation rate and there was no deflation, prices rose and prices stabilized”, explains the economist.
Faced with possible “very significant inflation”, Ricardo Ferraz anticipates that central banks – the European Central Bank (ECB) and the US Federal Reserve (FED) – will have the same response: “Increase interest rates again in an attempt to control prices.” “This will naturally impact and bring constraints on loan costs”, he explains.
Ricardo Ferraz highlights that it is impossible for now to define whether it is fish, meat or eggs that will become more expensive, but it is certain that there will be price increases. Generalized inflation begins in fuels, for a wide range of goods, followed by an increase in ECB interest rates, housing payments become more expensive and the door opens to a new period of lower economic growth on a global scale.
“If this continues over time, eventually intensifies, if there is an escalation involving other countries, there is indeed a serious risk here of having a new increase in prices, just as happened in the case of the invasion of Ukraine”, says the economist, warning that all this happens at a time when “in Europe things are no longer well, with Germany practically stagnant and the Euro Zone growing by 1%”.
One-fifth of all the world’s maritime oil trade passes through the Strait of Hormuz (Getty)
Although oil and natural gas from the Middle East are not significant imports for Portugal, the national economy will be indirectly affected, because, despite national fossil fuels essentially coming from Nigeria, Algeria and Brazil, less supply causes the price of a barrel to increase. “We have the price of oil rising above 80 dollars and could go above 100, if it continues to rise this will necessarily also affect the market price and will affect Portugal in that way”, he explains.
Although the worst-case scenario is on the table, Ricardo Ferraz believes that Portugal is not at any risk of entering a recession, remembering that there is always a small chance that all this economic turmoil will dissipate. “If it is anticipated that this will be resolved quickly, this problem will be resolved and, probably, we will not have a big increase here and tomorrow or the day after, prices may even fall again”, he says.
For Portugal, however, this event could not have come at a worse time. “Portugal suffered an internal shock [com as recentes tempestades] in which companies in the Leiria region, many of which are exporters, were heavily affected and now we have a possible external shock. There is high uncertainty here. It is difficult to guess whether this will already generate inflation. Now, there are risks”, guarantees Ricardo Ferraz.
