Why a US blockade of the Strait of Hormuz could hit the world economy

Motheo Khoaripe speaks to Donald MacKay, Director at XA International Trade Advisors about the escalating US threat to blockade Iranian shipping in the Strait of Hormuz.

Listen to the interview in the audio player below the article.

Global markets are on edge following reports that the United States may move to block Iranian-linked shipping through the Strait of Hormuz.

The move, which comes amid rising tensions with Iran, is being seen as a major escalation that could disrupt already fragile ceasefire efforts.

For the global economy, the biggest concern is the potential fallout. A prolonged disruption could tighten oil supply, push fuel prices higher, and increase costs across supply chains, from manufacturing to transport and retail.

Markets are especially sensitive given the already fragile state of the global recovery and ongoing geopolitical tensions.

There is also the risk of escalation. Iran has warned that any attempt to restrict shipping could be treated as an illegal act, raising the possibility of retaliation and further instability in the region.

Speaking to Motheo Khoaripe on The Money Show, Donald MacKay, Director at XA International Trade Advisors says if tensions escalate further, the economic impact could be felt far beyond the region.

"The blockade by the US is simply adding pressure to an already restricted oil supply, amongst other things to the rest of the world. So we are likely to simply see prices rise."

- Donald MacKay, Director - XA International Trade Advisors

"It lasts for as long as Iran wants it to last for. So at any point, the blockade can be lifted and the US can sail away, and then Iran can simply reimpose their blockade. It's not clear to me how this solves anything."

- Donald MacKay, Director - XA International Trade Advisors

"Unless the US is prepared to commit significant land forces and suffer all of the consequences that's happened before in the Middle East. I don't see how this plays out to be honest."

- Donald MacKay, Director - XA International Trade Advisors