It’s Not Just Oil. War in Iran Will Hike the Price of Nearly Everything You Buy

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2:45Bloomberg Audio Studios. Podcasts. Radio. News. If they're going to try to play us, then they're going to find that the negotiating team is not that receptive. On Friday, U.S. Vice President J.D. Vance departed for Pakistan, where he and a U.S. delegation will hold talks with Iran in an effort to turn this week's shaky ceasefire into a lasting peace. One key to a deal will be Iran's willingness to open the Strait of Hormuz, which has been effectively closed to shipping traffic since the U.S. and Israel first struck Iran on February 28. President Donald Trump on social media said Iran is doing a, quote, very poor job letting oil through the strait, and said Iran had better not be charging ships to pass through.

3:32Right now, more than 800 freighters are stuck inside the Gulf. Only a handful of ships have been observed passing through the strait each day, compared to pre-war times when about 135 ships a day would come and go. The blockade has sent gas prices surging, which in the U.S. contributed to a rise in consumer prices last month. But crude oil isn't the only commodity struggling to get through.

4:04A couple of our Bloomberg podcast colleagues have been chronicling how the conflict in the Gulf has been disrupting a wider array of raw materials and consumer goods with potential longer term and worldwide ripple effects. I always like to say that one of the things that OddLots tends to do well is we uncover the supply chains when they're affected. And right now is kind of like a bull market in supply chain shocks, right? I think one thing to understand about our current moment in the petrochemicals and also broader energy space is that this is the scenario that people were worried about for years.

4:43Like this is the thought experiment that used to dominate like bar talk for oil traders in London. What if the Strait of Hormuz was closed? What if the Strait of Hormuz was closed? And now we're actually experiencing it. And so now we're getting a much fuller understanding of exactly how all of that energy, all those carbons or whatever, actually route throughout the entire world.

5:04Tracy Alloway:Thanks to the brilliance of sort of advanced chemistry, everything can be kind of everything else in some sense. You turn oil into plastic. If you don't have oil, you can turn coal into oil and then turn that into plastic and so forth. When you cut off a bunch of stuff, you find ways to reroute things. But like when there's just a choke point, nothing gets through. I'm Sarah Holder, and this is The Big Take from Bloomberg News. Today on the show, I'm joined by Tracy Alloway and Joe Weisenthal, the hosts of Bloomberg's Odd Lots podcast. We talk about the downstream impacts of the closure of the Strait of Hormuz.

5:42And what could happen to the price of things like food and plastic if it doesn't reopen soon?

5:50So we're recording this on Thursday, April 9th. We're on the second day of a very fragile ceasefire between the U.S. and Iran. Global shipping through the strait is still essentially at a standstill. It's affecting lots of different commodities, including, but not limited to, oil. So give us a sense of what kinds of commodities are most affected here. Yeah, well, I think one thing to realize about the Gulf is it's not just where a lot of oil comes from. It is also where a lot of oil byproducts come from. And most of those byproducts happen to eventually get turned into petrochemicals. So we're talking about things like plastics, which are basically in everything.

6:29We're talking about things like fertilizers, whether they're phosphates or other types of fertilizers. Phosphates are byproducts of sulfur, which itself is a byproduct of oil refining. A lot of these Gulf nations got into the petrochemicals business because they had all these byproducts coming off from their oil industries. And, of course, it means that a lot of those petrochemicals now can't get out. And even for petrochemicals that aren't manufactured in the Gulf specifically, you have a lot of the feedstock that comes from the Gulf. Again, we're talking about things like nat gas and oil. They go over to places like Asia and then they get turned into plastics or fertilizers or whatever.

7:11All of those are disrupted.

7:13Tracy Alloway:The other thing I would say is that the dominant theme of this decade has been in every physical respect, countries wanting to have stockpiles in their own capacity of everything. So it's like there's helium in the ground in North America. There's a lot of it. But for years, like, you know what? It doesn't matter. There's plenty of helium that they're finding in the gas fields around Qatar. So it's like it's not that important to mine our own helium. But the bigger story is that from COVID to Russia's invasion of Ukraine to the trade war that Trump really accelerated in early 2025, now this war.

7:55Tracy Alloway:And I would also add in artificial intelligence and all of the fight for physical commodities to build the data centers. We're in an era of sovereignty focus where every country feels they need to have everything because every country could no longer take for granted that there is some really low cost producer somewhere in the world making it. Every country is going to want to either have domestic production, domestic mining or at least redundancies. Well, I want to talk more about helium because that was such an interesting episode. Why is the Gulf such a hotspot for helium and how much is actually coming out of the Gulf right now?

8:30Or how much typically comes out of the Gulf?

8:33Tracy Alloway:I had assumed that helium was like this gas byproduct. Because as Tracy mentioned, you know, you stick a pole in the ground and a bunch of other stuff comes out and you can monetize that frequently. Helium is incidentally not one of these things that's just naturally found where natural gas is found. Helium was found in the huge gas fields that Qatar and Iran control because that gas field happens to be so big that eventually, like, you stick enough pipes to the ground and some of them will hit helium. The other interesting thing about helium are the sort of market incentives at play. So for a very long time, the U.S.

9:12actually had a strategic helium reserve down in Texas, like this big cave filled with helium. and it turned out that, you know, storing it was expensive and it wasn't really thought to be that strategically necessary anymore and so we decided to sell it off and then lo and behold, you fast forward a few decades, like not only have you kind of undermined the market for I guess private helium exploration because you had so much of it stored in this cave, but it turns out that actually in moments like this, a strategic helium reserve could be kind of useful. Why is helium important? Is it just for balloons?

9:48Like, why did the U.S. need a strategic stockpile of helium?

9:52Tracy Alloway:See, we did our helium episode. In fact, our guest was Nicholas Snyder, the CEO of North American Helium. The perfect guest. Which is mining helium in Saskatchewan. Helium is only created on Earth by radioactive decay of uranium and thorium. So what makes it so useful is that it has the lowest boiling point of anything in nature. The biggest demand source, which you've probably seen in the news a little bit because of the events in Iran, is manufacturing semiconductors. And beyond that, one of the fastest growing end uses is for launching rockets for space exploration. One thing that it is very crucial for is etching for semiconductors.

10:32So that's a big one. My understanding is that that has to be done in a very cold environment and the helium is used to cool down the environment. Now, the cost of helium going up, that is probably a very marginal increase for most semiconductor manufacturers. But you would imagine that they still want a stable supply. The other interesting thing that's happening now is we are getting to the point in some markets where like you look at the spot prices for certain petrochemicals or for certain fertilizers. And there are analysts out there saying that the spot prices don't mean anything at the moment because numbers are getting quoted.

11:05But the actual petrochemical, the actual stuff can't actually get out of the straight. Or if the number is quoted, the quote disappears so quickly because the prices keep moving around that it's basically meaningless. So like we are actually talking about physical shortages at this point, not just price. Are we seeing price changes in the helium market? Well, OK, it's very hard to get a benchmark helium price. And I'm pretty sure we tried before the episode and there wasn't. There isn't one. I will say the helium CEO that we spoke to, we got a helium filled balloon from like CVS or something as a prop.

11:41And we were just talking about the pricing on it. And he asked how much we had paid. I think it was like$9. Yeah,$9 or something like that. And he kind of quipped on his way out the door, out the proverbial door because he was in Canada. He was like, oh, well, you know, in two weeks, it'll be worth$19, that helium.

11:58Tracy Alloway:One of the things that came up in the conversation, too, is that, you know, let's set aside where the helium is in terms of where it's mined. There are only so many like industrial storage containers that exist for helium. And then if you look at the type of high-grade helium that, say, a semiconductor manufacturer would want to use, they'd require a different type of storage container for their helium distribution because they need like seven nines, you know, 99.99999999, whereas maybe the other containers are just for 99.999. So the point is that, like, I think it's important to think about when we talk about commodities, the word commodities implies a degree of like it's all the same.

12:42Tracy Alloway:Fungibility. It's a commodity, right? But what we're learning when we sort of explore some of the different commodities that are being disrupted right now is that they're not commodities because to get them in one location versus another, the distribution is going to be so different that the price could be radically different. You also went deep on urea. And I know about urea because it's in my moisturizer. That's so funny. My husband got urea-based moisturizer for his feet. And he keeps trying to get me to use it. And I'm like, no, thank you. I don't want to put urea on my feet. Yeah, apparently it works.

13:15It was a little freaky to see that word on my moisturizer, but it's been pretty useful. All right, noted. But it's also very essential in agriculture. It's a key component of fertilizer. or how much of urea is produced in the Gulf and flowing through the strait on a good day. Yeah, so I think the important thing about urea is it's a byproduct of nat gas. The issue that we have now is with the Strait of Hormuz being disrupted, it kind of came at one of the worst possible times, which is the start of the spring planting season in the Western Hemisphere. And again, thinking about America, one of the dominant stories over decades now has been this idea of like the small-scale farmer really struggling with higher costs and lower food prices.

13:59And higher fertilizer costs already, even before this. Yeah, it was already elevated.

14:02Tracy Alloway:We did an episode just prior to like a few weeks before the war on something else, but they were talking about like, oh, the American farmers already have been like getting squeezed for various reasons. So there's already margins have been extremely thin. But when you think about the price of your food that you buy, A big element of that is the container, the plastics container. So it's like, you know, you buy a bag of carrots. A pretty big, a non-trivial amount of that will be the plastic bag. Since we're talking about plastics and we're talking about, like, that's been affected dramatically.

14:36Tracy Alloway:If we're thinking about how this war and the supply shock could transmit into higher food costs, it could be transmitted via higher food packaging costs. Well, then let's talk about oil byproducts like plastics and how they've been affected by this conflict so far. You talked about polyethylene. You had a whole episode with Philip Gertz, chemical and oil analyst at Bloomberg NEF. What did he say that struck you about how the packaging supply chains could be impacted? Well, I think the thing that struck me is just how fast they seem to be affected at the moment. So we already know that there are some, they're called crackers in Asia, places that actually transform petrochemicals into plastics.

15:19They're already shutting down production. And the difficulty with a lot of these like petrochemical operations and energy in general is once you shut them down, it's actually really hard to restart them and it takes a very long time. So, again, even if the conflict were to get resolved in the next day or week, these problems have the potential to linger on. Again, we've already seen some closures of crackers in Asia.

15:44Tracy Alloway:This is an important element, too, which is you may have seen one of the charts that's gone the most viral is the cost of jet fuel in Singapore. And this is a really important concept, or at least for me it really struck, which is because any of these operations have a high cost of shutting down and restarting. No facility wants to do that. That they will slow their intake, a refinery that turns oil into jet fuel. They don't want to shut down because, oh, there's no more oil. So they have this fixed amount of oil that they can get. So they start slowing down their intake. Like, then there's less jet fuel than you would anticipate given how much oil there is.

16:25Tracy Alloway:So the price of these end products surges much more than even the price of oil surges because that the refineries are already doing this rationing. And they're rationing because the last thing they want to do is run out. Because if they run out, then they have to shut down. And then that costs a lot of money. So when could strains to global supply chains start to impact consumers? That's after the break. Thank you.

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20:21When we think about all the commodities that we've talked about so far, which have experienced the most profound disruptions from the streets closure? And then what industries are being hit the hardest?

20:32Tracy Alloway:My guess right now is it's straight up transport still. It's like going to clobber aviation margins, etc. The West is kind of insulated at the moment. But again, all of these markets are interconnected in one way or another. And so we're going to see it spread slowly from Asia over into the West. And we're going to see it spread from the industries that are most immediately hit, like transportation, into second order effects, like what if Walmart has to raise the price of plastic bags or something like that? And it's hard to predict exactly how these things unfold. But again, we are talking about like a crucial part of the entire world supply chain.

21:11How have players along the supply chain been adapting to these disruptions, at least in the short term? Like, have they been changing their recipe, finding other shipping solutions, looking to other sources? Are there any unexpected winners as the straight is closed?