Former UK Prime Minister Rishi Sunak Warns of Fourth Major Supply Shock from Middle East Crisis
In a stark analysis, former UK Prime Minister Rishi Sunak has declared that the ongoing Middle East crisis represents the fourth significant supply shock of this decade, following the Covid-19 pandemic, the Russia-Ukraine war, and China's restrictions on rare earth exports. Writing for The Times, Sunak emphasized that Britain must urgently build resilience, noting the country's limited strategic gas reserves, which he said are barely sufficient for a few days of supply.
Strait of Hormuz Closure Threatens Global Economy
Sunak highlighted the critical situation in the Strait of Hormuz, where Iran is attempting to restrict traffic to only friendly vessels. "The Iranian regime is trying to close it to all but friendly traffic. They are attempting to put a dagger to the throat of the world economy, to make this conflict too costly to sustain," he wrote. He pointed out that while it was previously assumed Iran would not shut the strait due to its reliance on revenue from exports through these waters, the current actions pose a severe threat.
The former prime minister underscored the profound consequences if the United States fails to keep the Strait of Hormuz open, noting that maintaining international shipping lanes is a key role of a global hegemon. "If the US cannot keep the Strait of Hormuz open, it will be another puncture in the Pax Americana," Sunak warned, referencing historical parallels with the Royal Navy's role in the 19th and early 20th centuries and the US's post-1945 dominance.
Widespread Impact Beyond Oil Prices
The closure of the Strait of Hormuz would have ripple effects far beyond oil markets. Sunak cited specific examples: restaurants in Bangalore shutting due to gas shortages, South Korean electronics manufacturers facing helium shortages critical for chip production, and farmers in the UK threatened by rising fertilizer prices. "This spike in fertiliser prices could not be worse timed," he noted, as farmers apply nitrogen to winter crops and sow spring barley.
Lessons from Past Supply Chain Vulnerabilities
Sunak observed that the Covid-19 pandemic taught companies and governments to recognize supply chain vulnerabilities, with encouraging signs that firms have learned this lesson. He mentioned a company vital in any European war that avoids inputs from Taiwan, China, and the US due to risks, requiring suppliers to hold a year's stockpile. Additionally, a leading defense firm has used increased orders to fund a four-year store of rare earths as insurance against wartime interruptions.
Taiwan Strait: A Potential Larger Supply Shock
The events in the Strait of Hormuz should remind everyone of the risk of an even bigger supply shock involving Taiwan, Sunak argued. "Deterring any conflict in the Taiwan Strait is essential," he wrote, warning that China might see opportunity in the US's depletion of munitions like Tomahawk missiles and Patriot interceptors. Analysts believe the US could run out of long-range, precision munitions within the first week of fighting over Taiwan.
Sunak called for accelerated munitions production, criticizing the seven-year timeline for Lockheed Martin to quadruple Patriot interceptor production. "If we do not want the West to decline and fall, it is time to remember what the Romans taught us: si vis pacem para bellum (If you want peace, prepare for war)," he concluded, urging preparedness to prevent further decline.
