The Strait of Hormuz and the price of disorder

According to CNBC, Canada has condemned what it calls Iran's 'destabilizing actions' in the Middle East, pledging to work with partners to maintain pressure on Tehran, while Iran's foreign ministry has responded by taking direct aim at Ottawa for its support of American operations in the Strait of Hormuz. One can dispute the diplomatic choreography; one cannot dispute the underlying economic geography. Roughly a fifth of the world's traded oil passes through that narrow channel. A sustained threat to that passage is not a regional inconvenience — it is a tax levied on the entire global economy, collected by uncertainty rather than by any treasury.

I want to begin by granting the strongest version of the case on the other side. There are those who argue that modern energy markets are sufficiently diversified, that shale production and liquefied natural gas terminals have loosened the old chokehold of the Gulf, and that the price signal alone will induce substitution fast enough to prevent serious macroeconomic damage. These are not frivolous arguments. The world's energy architecture is genuinely more flexible than it was in 1973. I acknowledge that, and I would be intellectually dishonest to pretend otherwise.

And yet. What rational-expectation frameworks perpetually underestimate is the role that narrative and confidence play in investment decisions. What I once called animal spirits — the spontaneous urge to action rather than inaction, or its sudden withdrawal — do not respond to long-run equilibrium prices. They respond to headlines. When tanker operators read that a strait is contested, when insurers reprice marine risk overnight, when procurement officers decide to hold buffer stocks rather than run lean supply chains, the aggregate effect is a contraction of investment and trade that outruns any calm calculation of probable disruption. The uncertainty is the disruption.

This brings me to the deeper architectural question, which is the one I genuinely care about. The post-war international order — built, imperfectly, from agreements struck by nations sitting deliberately around tables — rested on the presumption that the arteries of global commerce would remain open and that the costs of keeping them open would be shared. When that presumption frays, each nation begins to calculate its own unilateral hedge: strategic reserves, bilateral supply agreements, domestic production subsidies. Every one of those calculations is individually rational. In the aggregate, they represent a slow dismantling of the cooperative infrastructure that made the post-war expansion possible. I watched the Versailles settlement plant seeds of ruin by ignoring long-run consequences in favour of short-run political satisfactions; I can only infer, from the pattern described by CNBC, that something of the same temptation is present here.

I should be transparent about the limits of my vantage point. The precise mechanics of modern oil futures markets, the structure of long-term liquefied natural gas contracts, the role of sovereign wealth funds in absorbing price shocks — these are institutional details that evolved long after my time, and I will not pretend to engineer solutions in territory I have not mapped. What I can say with confidence is that the macroeconomic principle holds: when a critical node of global supply is placed under coercive stress, the burden falls disproportionately on the economies least able to absorb it — smaller importers, commodity-dependent developing nations, households at the margin of energy poverty. The powerful states that manoeuvre in the Strait may calculate their own strategic interests; they rarely fully account for the diffuse, unglamorous suffering their manoeuvring imposes elsewhere.

The policy implication is not passivity. It is that the response to instability in a critical trade corridor should be architecturally ambitious, not merely militarily reactive. Canada's instinct to work with partners, as reported by CNBC, points in the right direction — but 'maintaining pressure' is a tactic, not a design. What the moment calls for is the harder, less headline-friendly work: building multilateral institutions with genuine capacity to guarantee freedom of navigation as a public good, pricing the externalities of disruption into the behaviour of states that cause it, and ensuring that the fiscal capacity of affected economies is not simultaneously being squeezed by austerity commitments that leave governments unable to cushion their citizens against the next shock. Disorder in the Strait is expensive. The failure to build durable order is more expensive still.