From Crude Oil To Cold Beer: Why Strait Of Hormuz Crisis May Soon Make Your Drinks More Expensive; Explained

The Hormuz crisis affects more than simply petrol/diesel. Now that the effects have radiated out beyond fuel itself to everyday items, we’ll now see unusual things like ‘beer’ also affected.

The focus of the disturbance is the Strait of Hormuz which is among the most significant shipping lanes worldwide. Approximately one-fifth of the global oil and gas supplies go through this Strait. It has become financially critical for energy supply and trade.

Currently, the nature of the continued conflict with Iran has led to a significant amount of instability in this region. Shipping activity has decreased dramatically with traffic often completely shutting down as a result of numerous attacks and inflated insurance costs. The number of tankers moving through this passageway has decreased dramatically to the extent that many shipping companies now do not use this routing at all.

The disruption created by this issue is also contributing to an even larger supply chain disruption than just fuel and has a direct impact upon both manufacturing/sourcing industries for finished goods and consumers for these goods.

How Crude Oil’s Impact Will Affect Beer

Beer doesn’t have an apparent relationship to crude oil as far as the final product manufactured and delivered. However, there is a significant relationship between how beer is manufactured, the energy necessary to manufacture and package beer, the type of packaging materials needed to manufacture and package beer and the transport logistics associated with delivering wholesaler (as well as retailer) from their respective manufacturers. All of these are now under tremendous pressure from continued Hormuz-related distress.

The rising cost of glass bottles, aluminum cans, and packaging materials is a result of the gas shortages. Brewers are already anticipating price increases and even a shortage of product due to higher input costs; especially during peak-demand periods.

At the same time, oil and gas supply interruptions are affecting the factories that manufacture glass bottles, aluminum cans, and packaging materials; therefore there will be production delays caused from lack of consistent electricity resulting in bottlenecks throughout the supply chain.

All of Asia is being affected, with increasing reports that everything from beer to snacks and toys to cosmetics are experiencing difficult times due to increasing costs and decreased availability; as supply chains are struggling with these two issues.

The report concluding on the matter said this crisis is “wreaking havoc on supply chains” and “causing sky-high prices,” with companies already preparing for even greater disruption.

Chain Reaction Throughout All Industries

The ripple impact of the Hormuz crisis has been very detrimental to many industries.  The ripple effect begins with oil/gas/energy, but the ripple impact continues to be felt throughout many other industries.  

Manufacturers need energy to power equipment needed for manufacturing. Transporting goods requires fuel. Raw materials for production operations (e.g. plastics, etc.) are made from oil (finishing). When energy is interrupted, the entire system arrests.

Due to the almost complete closure of shipping networks, goods are now being delayed, redirected, or have become too costly to transport. Insurers, such as the Lloyd’s of London and the marine insurance industry’s P&I Club, are forced to raise the cost of insuring ships and their cargoes. This has increased costs associated with international trade.

In addition, experts have indicated that the present crisis has far-reaching effects beyond just the impact of rising fuel prices; it is affecting consumers by driving up prices for ‘everyday goods’ and ‘changing the way we live our day-to-day lives across regions dependent on international commerce’.

Hormuz Crisis: What It Means for India

This is particularly significant for countries, including India, whose energy and natural resource needs are dependent on the importation of industrial and agricultural products and raw materials. Therefore, any disruption of trade through the Strait of Hormuz will result in increased prices and decreased supplies within the country at large.

Additionally, delays and/or rising prices of fuel coming into India will impact the economy negatively by driving up the costs for many other industries beyond simply the fuel industry (i.e., food products, beverage products, etc.).

Finally, long-term degradation of supply chains due to the crisis is likely to occur if the current crisis persists.

Also Read: LPG Crisis: Where Does India’s Cooking Gas Come From And Is There A Risk Of Shortage; Everything Explained