Hormuz blockade hits German steel output

German steel output fell 2.8% year-on-year (Tradingeconomics). The M+E sector (mechanical and electrical engineering, the backbone of German manufacturing) shrank 1.3% (Gesamtmetall). Logistics insolvencies hit 11.1 per 10,000 firms, the highest rate in the sector. One hundred days into the Strait of Hormuz blockade, the damage is reaching Europe's industrial core well before consumer prices have caught up.

From strait to factory floor

The Strait of Hormuz, the narrow waterway between Iran and Oman, normally carries about 14.8 million barrels of oil per day, roughly 14% of global demand. Traffic is running over 90% below normal. The world's largest emergency stockpile release, 400 million barrels activated on March 11, is draining fast. OECD emergency reserves have fallen to a 60-90 day buffer, approaching the IEA's (International Energy Agency) statutory safety floor.

Brent crude (the global oil benchmark) has settled around $93-98 per barrel, up roughly 35% from pre-crisis levels but well below the $200 some analysts feared. Saudi and UAE bypass pipelines can move 3.7-5.7 million barrels daily outside Hormuz. China's crude imports dropped to their lowest since 2020. Global oil demand fell 2.3 million barrels per day year-on-year in April. Demand collapsed so sharply that it offset part of the supply loss.

How deep the cracks run

The ifo Institute's May survey found 15.9% of German manufacturers reporting material shortages, up from 13.8% in April. Chemicals were hardest hit at 31.2%. The supply squeeze extends beyond raw materials: Swiss lubricant manufacturer Motorex reports input costs up 200-300%, with only 3-5 months of stock remaining.

Germany's full-year GDP growth forecasts have been cut to 0.3-0.5% for 2026. The eurozone as a whole shrank 0.2% in Q1.

The bill arrives in winter

The worst consumer impact is still months away. The IMF estimates that a doubling of freight rates adds 0.7 percentage points to inflation, with the peak arriving around 12 months later. Rabobank forecasts Dutch food prices 7% higher by Christmas as fertilizer and transport costs work through supply chains. Container rates on Asia-Europe routes jumped 20-25% in the first week of June alone.

The ECB (the European Central Bank, which sets interest rates for the eurozone's 20 countries) faces a trade-off with no good outcome. Eurozone inflation hit 3.2% in May, pushed by 9.9% energy price growth. Markets put a 99% probability on a rate hike to 2.25% on June 11. But the economy is already contracting. Raising rates to fight inflation caused by an oil supply shock (where prices rise not from excess spending but because goods can't physically reach the market) is the textbook stagflation trap: stagnation and inflation hitting at the same time, with no policy lever that fixes both.

Even if Hormuz reopens tomorrow, Rabobank estimates normalization would take until September due to mine clearance, tanker repositioning, and depleted inventories. The damage already moving through supply chains won't reach grocery shelves and energy bills for months. Wednesday's ECB decision will show whether the central bank prioritizes the inflation it can measure today or the recession it can see forming.