Energy Shock from Hormuz Blockade... U.S. PPI Surges 6%

EIA: "Blockade of the Strait Cuts Daily Oil Shipments by 6 Million Barrels"

As a result of the Iran war, oil shipments passing through the Hormuz Strait, which is now effectively blocked, fell by an average of about 6 million barrels per day in the first quarter of this year. With a supply shock from the Middle East, international oil prices and U.S. gasoline prices have surged, and the U.S. Producer Price Index (PPI) for April jumped by 6.0%, indicating that inflationary pressures from the energy sector are materializing.

According to Bloomberg on May 13 (local time), the U.S. Energy Information Administration (EIA) announced in its Global Energy Security Data report that the volume of crude oil and petroleum products passing through the Hormuz Strait in the first quarter of this year averaged 14.6 million barrels per day. This figure represents a decrease of about 5.8 million barrels compared to the same period last year (20.4 million barrels), and a decrease of 6.1 million barrels compared to the fourth quarter of last year (20.7 million barrels).

The Hormuz Strait has been virtually closed since the outbreak of the Iran war. As this strategic chokepoint, which previously handled about one-quarter of the world's seaborne crude oil shipments, has been blocked, cracks have appeared in global supply chains. As a result, international oil prices have soared. The price of Brent crude oil futures, which serves as a global benchmark, has risen by more than 45% since the outbreak of the war.

However, the global flow of crude oil has not come to a complete halt. As demand for alternative routes around the Hormuz Strait has increased, the volume of crude oil and petroleum products passing through the Panama Canal and the Bab el-Mandeb Strait at the southern end of the Red Sea increased in the first quarter of this year. Oil-producing countries have utilized alternative routes and expanded supplies from other regions to compensate for the shortage of Middle Eastern crude, resulting in the redistribution of oil shipments.

The EIA explained that the purpose of publishing this report for the first time was "to evaluate how the Iran war is disrupting global energy supply chains and changing previously held assumptions about the oil market."

The surge in oil prices is already being passed on to retail markets. According to the American Automobile Association (AAA), as of this day, the national average gasoline price stood at $4.51 per gallon, and the average diesel price at $5.65 per gallon. These prices are just shy of the record highs set in June 2022 ($5.01 and $5.81 per gallon, respectively).

The aftermath of the Iran war and soaring energy prices have begun to be reflected in U.S. inflation data as well. According to the U.S. Department of Labor, the April PPI rose by 6.0% year-on-year, marking the largest increase since 2022.

Previously, the growth rates for February and March were also revised upward to 0.6% and 0.7%, respectively, signaling that inflationary pressures are broader and more persistent than expected. The core PPI, which excludes volatile energy, food, and trade services, also increased by 0.6% from the previous month, surpassing the forecast of 0.3%. The year-on-year growth rate for core PPI was 4.4%.

When the PPI rises, it can be reflected in the Consumer Price Index (CPI) with a time lag. If companies pass on higher production costs to consumer prices, it could further delay the Federal Reserve's timeline for interest rate cuts.

This is because several inflation components of the PPI—such as airfares, investment management services, and medical expenses—are used in calculating the Fed's preferred inflation gauge, the Personal Consumption Expenditures (PCE) index. The Wall Street Journal (WSJ) pointed out that "with the PPI surging following the previous day's high CPI, the rise in energy costs is fueling inflation across the broader economy."

This content was produced with the assistance of AI translation services.