- US President Donald Trump said America is independent of Middle East oil
- Trump added US imports almost no oil via Strait of Hormuz.
- Trump's address led to a 4% rise in crude oil prices
"We're now totally independent of the Middle East... We don't have to be there. We don't need their oil," said US President Donald Trump in his latest address on Thursday.
He added, "The US imports almost no oil through the Hormuz Strait and won't be taking any in the future. We don't need it. We haven't needed it, and we don't need it... And the countries of the world that do receive oil through the Hormuz Straight must take care of that passage." FOLLOW LIVE UPDATES
With this, Trump passed the buck on the opening of the strait, critical to global oil supply. Expectedly, his remarks triggered an over 4 per cent rise in the price of crude oil within a few minutes of his speech.
Even as Trump's speech has left the world in an "every man for himself" situation, analysts have pointed out that the US President is ill-informed if he thinks the Strait of Hormuz closure won't impact the American economy.
Why Hormuz Matters To US
First things first, crude oil benchmark - Brent - is determined by global oil supply (and not just US oil supply). So, continuing disruption in the strait will keep oil prices volatile and US economy on the edge. If things go south, inflation in the US could rise above 3.5 per cent (up from 2.41 per cent).
Secondly, the US also depends on oil imports because the country produces sweet oil (a clearer version of crude oil). However, most of its refineries are built to refine sour crude oil (with more impurities). Besides, US imports about 25 per cent of its oil needs from Canada, about 3 per cent from Mexico, and 12 per cent from other countries, according to a report from the American Fuel & Petrochemical Manufacturers.
The shock is not limited to oil. Nearly a third of global fertiliser trade moves through Hormuz. That supply is now choked. Hence, farm input costs are rising. Food security risks are growing.
Also, prices of aluminium, sugar and helium have moved up due to the closure of the Strait. Helium is critical for semiconductor manufacturing. The ripple effects are spreading across industries. Fuel, food and industrial inputs are all getting costlier.
Iran Remains Firm
Meanwhile, an Iranian lawmaker, Ebrahim Azizi, has said the strait would reopen, "but not for you," referring to the US. And as long as the Strait of Hormuz remains restricted, the pressure on inflation and growth will continue worldwide.
According to a few geopolitical analysts, this could be Trump's new business move. He, himself, said, "Walk away, and let countries dependent on it clean up the mess. Or, just buy oil and gas from America." As long as the Strait of Hormuz remains shut, the oil supply crunch will only worsen. It will only lead major oil-importing economies to buy more from the US.
For India, this might make matters more complicated. Buying oil from the US wouldn't be financially viable for India. Also, the time for oil tankers to reach Indian shores (from US ports) would be too much. Effectively, India might have to prepare for a long haul in terms of the economic impact if New Delhi doesn't reach any agreement with Tehran on Hormuz.
