The Strait of Hormuz handles roughly 20 per cent of the world’s annual liquid natural gas (LNG) trade and up to a quarter of its seaborne oil. This disruption is driving energy futures up.
Atlantic and Pacific LNG freight rates have increased by more than 40 per cent and the South Korean maritime ministry has advised shippers to refrain from operating in the Middle East (according to Reuters on 2 March).
According to marinetraffic.com, “a ~70 per cent drop in traffic by 28 Feb 2026 end of day, alongside reported attacks, raises further enforcement potential, force majeure, and liability exposure even without a formal closure.”
Historically, we’ve seen similar dynamics during events like the 2021 Suez Canal blockage, which caused a logistics disruption. The ongoing fallout from the Russia-Ukraine energy shock, and its long-term impact on energy prices, is affecting European manufacturing in the long term.
The Hormuz disruption effectively combines both types of shock, and the best analogy may be the 2015-16 industrial slowdown.
We expect the brunt of the manufacturing impact to be felt in three key areas. Energy-intensive sectors, which were already reeling from the Russia-Ukraine energy shock, are likely to face further cost increases. These include industries such as chemicals and metals.
Export-oriented manufacturing hubs in Asia – which ship goods through the Suez Canal into Africa, Europe and the Middle East but rely heavily on petrochemical output from the Gulf – are also likely to face rising input costs and potential freight disruptions.
Down the line, machinery and industrial equipment demand could weaken if sustained energy price increases and inflation lead manufacturers to delay or scale back investment in the long term.
In 2022, Europe’s exposure to the energy shock was not as clearly observable due to the strength of the post-Covid manufacturing rebound.
However, this buffer has largely disappeared, meaning a similar disruption today could produce a very different outcome. This insight primarily focuses on the impact of energy shocks on the manufacturing sector historically.
How energy shocks are transmitted through manufacturing
Historically, disruptions to energy markets and global logistics have had significant downstream effects on manufacturing activity.
When energy prices rise or shipping routes become constrained, the impact typically spreads through industrial supply chains; first affecting energy-intensive production, before eventually influencing broader manufacturing investment decisions.
The Russia-Ukraine energy shock in 2022 provides a recent example, but its manufacturing impact was not always clearly observable in manufacturing output data.
The strength of the post-Covid recovery, including large order backlogs, inventory rebuilding and pent-up demand, helped support manufacturing activity even as energy costs surged.
Looking at sector-level performance in Germany reveals that energy-intensive industries experienced far greater strain during this period, once the post-pandemic boom had normalised.
Industries such as chemicals and metals faced significant cost pressure as energy prices surged.
While these sectors still recorded growth alongside the broader post-Covid manufacturing rebound, their performance was noticeably constrained by rising energy costs, meaning much of the growth observed was driven primarily by the normalisation of economic activity following the pandemic rather than underlying industrial momentum.
This manifested as the two industries shrinking in 2023 despite total manufacturing growing in Germany.
The year 2023 was particularly stark for the chemicals & pharmaceuticals sector, as it shrank by 14.4 per cent – more than it had previously shrunk during the pandemic.
A historical example without the noise of the post-pandemic recovery is the 2015–2016 industrial slowdown.
During this period, shifts in oil markets and weakening global demand contributed to a cooling in manufacturing activity, which translated into reduced industrial investment and slower machinery demand.
Although energy prices fell during 2015–2016, rather than rising as they are today, the transmission mechanism through the manufacturing economy is likely to be similar, with energy market disruption influencing industrial investment cycles.
If a disruption to energy supply through the Strait of Hormuz were to persist, the resulting shock may resemble the industrial dynamics seen during the 2015-16 slowdown more closely than those observed during the 2022 energy crisis.
Without the buffer of a post-Covid boom in the global manufacturing cycle, rising energy costs could feed more directly into sector-level production declines.
Higher energy prices increase costs for both manufacturers and consumers, and in the longer-term lead to weaker machinery demand as industrial investment slows.
With the post-pandemic recovery now largely complete, the global manufacturing environment looks materially different from the conditions seen in 2022.
Order backlogs have normalised, inventory cycles have cooled and industrial growth momentum has slowed, meaning a sustained disruption to energy markets or shipping routes could translate more directly into manufacturing activity and industrial investment.
In essence, there is no backstop to drive growth, so a sustained energy crisis could have dire consequences for both Europe and the wider global economy, leading to a significant downgrade from our current outlook.
Final thoughts
Taken together, historical manufacturing data suggests that disruptions to energy markets and global shipping routes can propagate through the manufacturing economy in clear and predictable ways.
While the 2022 energy shock was partially masked by the strength of the post-pandemic recovery, today’s manufacturing environment appears far more exposed.
With order backlogs largely normalised and industrial growth stagnating, a sustained disruption to energy supply or freight routes, such as the current situation with the Strait of Hormuz, will translate more directly into rising input costs, sector-level production pressure and weaker industrial investment.