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Pay Attention to the Strait of Hormuz and the Red Sea
Since the October 7 massacre, the Arab world (excluding Saudi Arabia, UAE, Qatar, Kuwait, and other rich Arab states) has declared war on Israel. As much as the rich Arab states are wise to side with the West and Israel, at the end of the day, they're playing both sides very well with their true allegiance to the West. Without Israel and the West, the Middle East would be plagued with extremism and economic growth becomes limited. Without Israel and the West, all these rich Arab states would not be able to enforce the strict law and order reputation that they currently have today. Without Israel and the West, who knows what the Houthis would've done with Mecca, one of the holiest cities in Islam.
In the image above, you can see the Persian Gulf. At the point where both sides of land come closest together is the Strait of Hormuz. The image below provides a better view of what I'm talking about. As you can see, Iran, the main provider of arms and training for proxy armies like Hamas, Hezbollah, and Houthis, is very close to these rich Arab states. At any time, it could close the Strait of Hormuz and remove 20% of oil shipments that happens on a daily basis globally. The Arab states do not have strong militaries like Iran and that's why they are reliant on the West and Israel to quell Iran's influence in the region. For Saudi Arabia, they need the US to remain in and protect Iraq from Iran and its proxies because if Iran takes over Iraq, then Iran will be right next to Saudi Arabia and take over the nation. Like Afghanistan, the US presence in Iraq is more than two decades long. Unlike Afghanistan, Iraq is more important to the rest of the world simply because it's the buffer state that protects Saudi Arabia from Iran.
Knowing this, you know that UAE, Qatar, and Kuwait rely immensely on a calm Persian Gulf to support its economy. For Saudi Arabia, since it's massive, it can redirect oil shipments from the Persian Gulf to the Red Sea. At least Iran is far from the Red Sea. But, a new problem arises: the Houthis. The Houthis are arguably the most advanced out of all the Iranina proxies. They were able to shoot down an MQ-9 Reaper drone along with F-16s, a Mirage jet, a Eurofighter Typhoon, Apache helicopter, and many more aircraft. If the Houthis were able to destroy some of the West's advanced aircraft, it's wise to assume that Iran has much higher capabilities especially when they were able to shoot down a $220 million drone.
As the Houthis have ramped their attacks on cargo ships in the Red Sea, keep in mind that around 10% of the world's seaborne cargo, mainly oil, goes through this sea. This sea is so important that its chokepoint, which is located very close to Djibouti, has military bases from China, USA, France, Italy, and Japan. These military bases were built there to allow foreign militaries to come together and crack down on maritime piracy. While maritime piracy back then was mainly done by Somali pirates, now, the Houthis have become the main pirates of the seas.
Altogether, this region of conflict has more than 30% of the world's oil at stake. If ever Iran gives the call to its proxies to shut down the two seas, and I see it being likely after Ramadan 2024, then we will see oil prices spiking, the inflation crisis roaring back for its second wave, and the economy encountering an actual recession. Without abundance in energy, the global economy will grind to a halt.
The Three Inflationary Waves of the 1970s, which may be reminiscent of what this decade will endure, looks eerily similar to what this world has endured so far. For those unaware of what happened in 1973, the Saudi oil embargo crisis occurred, causing gas prices to surge. I see the Houthis and Iran blocking off the world's access to the Red Sea and Persian Gulf as the catalyst for the 2nd wave of inflation.
As a bonus, the Iranian Hostage Crisis of 1979 is what caused the 3rd wave of inflation. Maybe China invading Taiwan or Iran invading Iraq will cause this. We don't know.
Conclusion
Tensions in the Middle East will only continue. Prepare for more inflation as insurers are pricing steep premiums for shipments going through the Red Sea. Since Israel is too busy fighting enemies on all sides and the US is busy with helping Israel, Ukraine, Iraq, and Taiwan, avoiding business with the Middle East is the best thing anyone can do.
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