ED CONWAY: If this war doesn’t end soon the world will be in the grip of an economic catastrophe on a scale we have never seen before. This is what Britain and its people must do now to protect our homes and lives

We’ve never seen anything like this before.

There were wars in the Persian Gulf; at least two of these remain in living memory. There were shocks in oil prices; The most well-known of these occurred in the 1970s and 1980s. As we all know, there have been war-induced cost-of-living crises as we face the aftershocks of Russia’s invasion of Ukraine.

But this latest war puts a knife to the throat of the economy.

The Strait of Hormuz is the most important water area anywhere in the world. Think of the global economy as a giant organism: Like all large animals, it needs to be constantly fed.

From metals to fuels, from minerals to foods, we stick raw materials at one end. From the other comes everything we take for granted, from computers to phones to the power, heat and chemicals that keep us alive.

And few of these ‘inputs’ are more important than oil and gas.

Many people assume that by 2026 we have eliminated our dependence on these messy pollutants, or at least are close to doing so. They are wrong.

Like it or not, the world still needs oceans of oil, not just to fuel cars, planes, and ships, but also to make medicine, plastics, and a million other products.

We need gas not only to heat our homes, but also to help produce the nitrogen-based fertilizers that grow our food. No fertilizer, that is, fossil fuels, and half the world’s population would not die.

That’s why this moment is so dangerous. Nowhere is there a greater concentration of oil and gas resources than the Persian Gulf.

Yes, Russia has natural gas wealth. There is plenty of oil in the shale layers beneath Texas. But even today, after more than a century of intense drilling, no other place remotely rivals the Gulf’s abundant oil and gas in its subsurface.

All of this is why the events of the last few weeks have taken on unnerving, terrifying proportions.

Consider what just happened to Ras Laffan. Most people haven’t heard of Ras Laffan, a mysterious city of steel pipes and chrome boxes in the deserts north of Qatar City.

But make no mistake, this is arguably the most important area of ​​energy production anywhere on the planet. And last week parts of it were blown to bits by Iranian missiles.

According to bosses there, the damage will take years to repair. Gas shipments booked by Europeans may have to be canceled entirely for the next decade. But even that assumes everything is back to normal. And right now there’s little sign of that happening.

About a hundred miles north of Ras Laffan, another critical area with a similarly vague name is Ras Tanura. This is where Saudi Arabia loads oil onto tankers to be transported around the world.

However, Ras Tanura was effectively closed. This is not only because of the ever-present risk of attack by Iran, but also because the oil has nowhere to go.

During the oil crisis of 1973, caused by events in the Middle East, drivers queued for gasoline.

In normal times, the majority of oil and gas coming from these two important facilities left the region with tankers passing through the Strait of Hormuz.

The reason this choke point is so important (even more than a handful of other narrow waterways around the world) is that there is no good alternative.

If ships want to avoid the Bab-el-Mandeb Strait, the southern entry point to the Red Sea, as they have for several years against attacks by Houthi rebels, they can take the long route around Africa via the Cape of Good Hope.

However, there is no easy way to cross the Strait of Hormuz.

Faced with an existential threat, the world should not be surprised that Iran is weaponizing the economy by attacking ships and effectively closing the Bosphorus to most ships.

Let me return to the idea that the world economy is a huge organism.

It needs approximately 100 million barrels of oil per day to operate. This is the lifeblood that flows through its system, keeping planes flying and commerce flowing.

Closing the Strait of Hormuz means that we are suddenly 15 million barrels short of oil per day; 20 million barrels if you include the oil transported from the Gulf in the form of oil, kerosene or other refined products.

Britons are feeling the effects of the crisis in oil prices at the pump

An oil platform in the North Sea with vast oil and gas reserves that the United Kingdom can exploit

The choke point is starting to choke the planet. That’s why oil prices are rising along with flight costs, heating oil costs, and everything else that starts its life as crude oil.

That’s why some countries, from India to Vietnam, have begun rationing fuel and encouraging their citizens to work from home and save money.

gasoline. That’s why anyone who takes the time to think seriously about the fundamentals of the global economy is starting to worry.

Because episodes like this are extremely rare, and this could soon be the worst yet.

Consider the 15 million barrels of oil we are missing. This deficit is more than four times larger than the deficit the world faced in the 1970s or 1980s. This is more than six times the volume of oil lost by Russia’s invasion of Ukraine. This is economic hunger on a scale the world has never seen before.

Faced with this huge gap between the oil the world needs to keep running and the oil it actually gets, there are two pressing questions. What happens next? So what can be done to fill the gap?

What happens next depends almost entirely on whether the Bosphorus will open quickly or not.

Donald Trump’s call last weekend for his allies to send ships for aid underscores that despite his early confidence, the President is beginning to harbor serious doubts that it will be short-lived and have little impact on the global economy.

It is difficult to envision a return to normal shipping volumes until Iran and its proxies stop attacking ships in the Bosphorus, and there are currently few estimates of how long this will take.

On the one hand, the US military has an overwhelming superiority in firepower. On the other hand, this is a scenario that the Iranian regime has been wargaming for decades, and it doesn’t require that much firepower to disrupt shipping. This is something the Houthis have been demonstrating in the Red Sea for years.

If, for whatever reason, the attacks stop and ships continue to move in and out of the Gulf, the economic impact may be short-lived. Yes, this event will leave a scar: It will take months for oil and gas production in the Gulf to return to normal. However, in the medium term, prices are expected to calm down by next year.

If the Strait remains closed, oil prices will rise even further, perhaps reaching record levels.

But if the closure, which lasts for weeks, spreads to months, or God forbid, years, the consequences will be very dire for all of us.

Oil prices will rise even further, perhaps reaching record levels. Deprived of energy, global economic activity will collapse. Almost everyone will become poorer, except for the oil and gas companies still pumping hydrocarbons out of the Gulf.

This would translate into an energy price shock much worse than the shock Europe experienced in 2022; but this time it will spread to a large part of the world, especially Asia. In short, it would be a disaster.

Well, let’s come to the second question: Can anything be done as long as the Strait of Hormuz remains closed?

The main goal is to close this 15 million barrel deficit. There are some pipelines in the Gulf that can extract oil without having to cross the Bosphorus: notably the East-West Pipeline through Saudi Arabia. But even in the best-case scenario, this could only carry another five million barrels or so per day.

Rich countries have pledged to extract 400 million barrels of oil from their stocks; crude oil was stored in salt caverns and steel tanks scattered around the world.

This sounds huge and is indeed the largest emergency stock release in history. The problem is, they can only pump out so much at a time. This could only add another four or five million barrels of oil per day to the global system.

We are still five million barrels short, which may not seem like much, but it is twice the impact of the Russia-Ukraine conflict.

And that’s assuming everything goes as well as possible.

You probably get the picture. There’s no easy way out of this.

While all this may seem a long way from the UK, we are more vulnerable to this crisis than most other developed economies.

First, we have the highest energy prices in the developed world; This is partly due to the high cost of installing an ambitious wind energy system and partly due to our dependence on gas as the main support of our grid.

The North Sea, once one of the world’s most productive basins, is now a shadow of its former self; It provides just under half of the oil we need in this country and even less of the gas we need.

As a result, the country has become a net energy importer, dependent on LNG, which is no longer produced in Qatar, and vulnerable to sharp price increases in global markets.

These are the consequences of decisions made years, in some cases even decades ago. Successive governments, especially the current one, have imposed so many taxes and regulations on oil companies that many no longer see much point in exploring deeper into British waters.

For some green campaigners, this is a sign of success.

They see the decommissioning of the North Sea as an inevitable step on the path to Net Zero, where the country no longer contributes anything to global carbon emissions.

The problem with this vision is that even in 2050 – that much-vaunted Net Zero year – if all goes entirely to plan, Britain will still be dependent on gas as a mainstay for nuclear and intermittent wind and solar power. This is according to the government’s own plans.

Unless things change, most of our gas will continue to be imported; Some of them are from Norway, some of them are from countries such as Qatar and the USA.

But if you squint a little, an alternative scenario emerges in which Britain gets most of its gas from its own North Sea resources. And because the gas comes from close range, it will have even lower emissions than LNG shipped from abroad.

But this would require a major change in attitudes towards oil and gas, both in Britain and further afield.

Until recently, the International Energy Agency insisted that there was no need for new oil and gas exploration in the coming decades. Energy Secretary Ed Miliband plans to legislate such a requirement. However, a lot has changed in the intervening years.

In the pre-2022 world, it made sense to order a barrel of oil or thermal gas from the other side of the world, so it made sense to subjugate Britain’s energy system to countries like Qatar and Saudi Arabia.

Today, with the world in economic straits, the logic is reversed.

Although this wasn’t already obvious, it will become very obvious in the coming months as we deal with the consequences of a war whose economic repercussions are just beginning to be felt.

We must all keep our fingers crossed that this nightmare ends soon and the Iranians relinquish their control of the choke point in the Persian Gulf. Otherwise, we will all face a painful reckoning.

Ed Conway is Sky News’ Economics Editor and writer of the Material World.