Hormuz and the Energy Price Domino Effect: From Oil through Electricity to Gold

The crisis around the Strait of Hormuz is more than an oil-market disruption. Large volumes of diesel, gasoline, jet fuel, LPG and LNG pass through the route alongside crude oil, so a prolonged restriction on traffic could set off a series of interconnected energy-price shocks. Even if the strait remains formally open, permits, military escorts and exceptional insurance costs could leave it severely constrained in practical market terms.

The greatest vulnerability may not be a shortage of crude oil itself. Replacing refined petroleum products quickly requires spare refinery capacity, suitable crude, logistics and exportable inventories. Restricted operations at Middle Eastern export refineries and the sharp decline in Russian diesel exports are eroding the market’s buffer at the same time, making a disproportionate price response to even a modest additional disruption more likely.

An LNG shortfall could amplify the same mechanism. More expensive natural gas raises the cost of gas-fired electricity and, in some countries, may redirect demand toward diesel- and fuel-oil-based generation. The shock can therefore feed back from the gas market into an already tight diesel market, then spread through transport, agriculture, industry and household spending into broad inflationary pressure. Higher interest rates cannot resolve this supply constraint, but they can weaken growth further.

Gold consequently faces two opposing forces. Geopolitical uncertainty and fears about financial stability can increase safe-haven demand, while inflation risk may initially produce expectations of higher interest rates, a stronger dollar and higher bond yields, all of which can weigh on gold. A more favorable turn for gold may emerge not with the first jump in oil prices, but later, if a prolonged energy shock produces stagflation, rising fiscal burdens and falling real yields.

Duration is therefore the decisive variable. A brief interruption may be absorbed through inventories and alternative shipments; a disruption lasting several weeks or recurring over months could develop into an economic-policy trap that spreads through the entire energy system. The full analysis traces this domino chain from the Strait of Hormuz through diesel, LNG, electricity and inflation to gold.

The purpose of Unus Multorum is not to tell readers what to think about a particular event. Its purpose is to reveal the connections that allow every reader to form their own conclusions.