A prolonged war in Iran would increase the likelihood of inflation and also cause a slowdown in consumer demand. All this is troubling for the CEO of container shipping giant Maersk, who warns that the deadly combination is already roiling the global shipping industry.
“The war in the Middle East has created a new wake-up call, leading to significant disruptions both in the flow in and around the Middle East, as well as in our energy supply,” said CEO Vincent Clerc. He told CNBC’s “Squawk Box Europe” program on Thursday. “We’re an extremely energy-intensive industry, and that’s created a whole new set of circumstances that we have to deal with now, and that will have a significant impact on the second and third quarters.”
Maersk is at the forefront of the oil shock, deeply intertwined with fuel costs and global logistics, making it a harbinger of how the world will deal with widespread energy shortages.
The Strait of Hormuz, through which one-fifth of the world’s oil passes, remained effectively closed throughout the war in Iran, allowing oil prices to remain above $100 per barrel. The price was: about $105 As of Friday, the market was still trading above pre-war levels of $70 as it struggled to make sense of mixed signals about peace talks that could reopen the trade route between the United States and Iran.
Goldman Sachs analysts had previously predicted that oil prices could fall if disruptions in the supply chain continued. Stay high until 2027. It’s only been two months, the shock already has its consequences Spirit Airlines end operationscannot afford rising jet fuel costs.
Now Maersk, the world’s second-largest shipping company, which operates 700 ships and transports about 14% of global containerized goods, says the protracted war has affected logistics. The company already suspended two keys Ship services connecting the Far East to the Middle East and the Middle East to Europe took place in March. On Thursday, Clerc confirmed that one of Maersk’s commercial ships was able to pass through the Strait of Hormuz under US military protection, but the company still has six ships stranded in the Gulf.
Clerc explained that increased energy spending was costing the company an extra $500 million a month, and while Maersk had strategies to reduce costs, its consumers, from small businesses to multinational conglomerates, would have to bear some of the burden of the increases.
“There’s a lot we can do to reduce costs, but there’s a lot we need to do to pass those costs on to customers because it’s such a huge cost increase that we can’t shoulder that,” he said.
The energy shock has led to widespread concerns about inflation. Among them St. Federal Reserve officials, including St. Louis Fed President Alberto Musalem, said persistent energy costs could be reminiscent of the pandemic in which disruptions in the global supply chain following the onset of Covid-19 contributed to a rapid increase in inflation. Supply chain pressures have increased goods production costs, This accounted for 60% inflation in the country to decrease from 2021 to 2022. Gas prices are already at average Over $4.50 per gallonThat’s a 43% increase compared to just $3.15 per gallon a year ago.
Musalem: “Inflation is significantly above our target” he said at an event This week. “We have risks on both the employment and inflation side. As far as I understand, the risks are shifting towards the inflation side.”
Maersk announced its first quarter profit That includes a 2.6% drop in revenue to $13 billion on Thursday and a nearly 75% drop in operating profit to $340 million. The shipping company maintained its operating profit forecast for the rest of the year, ranging from a $1.5 billion loss to a $1 billion profit.
Concern about loss of demand
Clerc expressed concern that continued pressures on consumers will increase the likelihood of demand extinction, which will lead to a prolonged decline in demand for a particular product due to supply constraints. A broader slowdown could threaten the overall container volumes of the entire shipping industry.
Last month, the International Energy Agency (IEA) report pointed out the first signs of this phenomenon: Oil demand is expected to contract by 80,000 barrels per day in 2026. In March, the IEA predicted demand would rise by 730,000 barrels per day this year.
“As some of these costs reach the end consumer, will we see a loss of demand at the consumer level and will this be reflected in the supply chain as demand decreases in the second half of the year?” Clerc asked. “That’s definitely something that we’re looking at very, very closely because it’s going to absolutely change the equation of how this crisis is going to impact the global supply chain and our industry in particular.”
While Clerc’s demand loss concerns are reflected in early data, Ryan Kellogg, an energy and environmental economist and professor of public policy at the University of Chicago, said it’s not yet clear whether the global oil industry will see demand destruction, which is usually a long-term headwind.
Kellogg previously said Luck This loss of demand could mean a push away from combustible engine cars towards electric vehicle production; This could lead to fluctuations in other critical minerals, leading to “economic difficulties” in the medium term.
“It’s very arguable that we’ve entered a new era where oil supplies from the Persian Gulf region are not as consistent and reliable as we once thought, and we think it makes sense to move away from that,” he said. “There is some adaptability. But it comes at a cost.”
This story first appeared on: Fortune.com
