Hormuz blockade dents German steel

The first clear bill from Hormuz is turning up in German factories, not yet at supermarket tills. Steel output fell 2.8% year-on-year (Tradingeconomics). The M+E sector, mechanical and electrical engineering and the backbone of German manufacturing, shrank 1.3% (Gesamtmetall). Logistics insolvencies have reached 11.1 per 10,000 firms, the sector's highest rate. One hundred days into the Strait of Hormuz blockade, the shock has reached Europe's industrial core before consumer prices have fully 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 a day, roughly 14% of global demand. Traffic is running more than 90% below normal. The emergency response has been enormous: 400 million barrels released from the world's largest stockpile activation on March 11. But that cushion is being used up quickly. OECD emergency reserves have fallen to a 60-90 day buffer, close to the International Energy Agency's statutory safety floor.

Brent crude, the global oil benchmark, has settled around $93-98 per barrel. That is roughly 35% above pre-crisis levels, though still far below the $200 some analysts feared. Saudi and UAE bypass pipelines can move 3.7-5.7 million barrels a day outside Hormuz. China's crude imports fell to their lowest level since 2020. Global oil demand dropped 2.3 million barrels a day year-on-year in April. Demand weakened so sharply that it absorbed 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 hit hardest, at 31.2%. The squeeze is spreading beyond raw materials. Swiss lubricant manufacturer Motorex says input costs are up 200-300%, with only 3-5 months of stock left.

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

The bill arrives in winter

The hardest consumer impact is still to come. The IMF estimates that a doubling of freight rates adds 0.7 percentage points to inflation, with the peak arriving about 12 months later. Rabobank expects Dutch food prices to be 7% higher by Christmas as fertiliser and transport costs pass 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 that sets interest rates for the eurozone's 20 countries, now faces a trade-off with no clean answer. Eurozone inflation reached 3.2% in May, pushed by 9.9% energy price growth. Markets put a 99% probability on a rate rise to 2.25% on June 11. For Irish mortgage holders, as for German manufacturers, the decision will be felt quickly. The difficulty is that the eurozone economy is already contracting. Raising rates to fight inflation caused by an oil supply shock, where prices rise because goods cannot physically reach the market rather than because consumers are spending too freely, is the standard stagflation trap: weak growth and rising prices at the same time.

Even if Hormuz reopened tomorrow, Rabobank estimates normalisation would take until September, because mines would have to be cleared, tankers repositioned and inventories rebuilt. The damage already travelling through supply chains will take months to reach grocery shelves and energy bills. Wednesday's ECB decision will show whether the central bank gives priority to the inflation it can measure now or the recession it can see taking shape.