The turmoil in the Middle East and shipping blockages in the Strait of Hormuz will have a long-term impact on the global economy, in particular the energy sector, according to Stephen Millard, deputy director of macroeconomic modeling and forecasting at the UK's National Institute of Economic and Social Research.
In an interview with China Global Television Network (CGTN), Millard said that even as the Strait of Hormuz returned to normal operation, the impacts on the global economy will linger.
"Even with the Strait of Hormuz beginning to get back to normal, it is going to take a good few months until everything is sort of coming back down again. So, we are in for higher prices for a while. So before the war started, we were expecting all central banks pretty much to cut their rates over the course of 2026. Since then, actually we've seen a rise in rates from the ECB. We now expect both the Fed and the Bank of England to hold rates throughout this year on account of the higher prices. But having said that, with things beginning to return to normal and a peace process in place, then maybe we might see central banks start cutting rates early next year," Millard said.
Millard said a proper long-term response to the turmoil in the Strait would be to diversify energy production and supply chains for critical resources.
"In terms of energy specifically, and that I guess is the biggest issue with the Strait of Hormuz, then the answer is to speed up and intensify the green transition. The less we're reliant upon fossil fuels, the less we will be reliant on the Strait of Hormuz being opened. More generally, of course, your correspondent again mentioned a whole ton of supply chains where the supply of various things, fertilizers, helium, hydrogen, come through the Strait of Hormuz, the answer is to look for alternative sources of supply and to think about re-shoring supply chains, sort of making supply chains a little bit more local and a little bit less open to geopolitical events such as this one," he said.
Turmoil in Strait of Hormuz to have long-term impact on global economy: economist
