Inflation at its highest in 3 years, stagnant growth: France caught in the grip of the Straits of Hormuz and Bab el-Mandeb

Social movements against the high cost of living, in France as elsewhere in Europe, recall the deleterious effects of inflation on purchasing power, particularly for low incomes who devote a greater share of their resources to consumption. From the service station to the consumer basket, the transmission of the rise in energy prices has now largely taken place. According to INSEE, inflation reached 3.1% over one year as of October 15, its highest level in three years. Underlying inflation, excluding energy, stands at 1.5%: a sign that the energy shock could gradually spread.

The situation is similar throughout the Eurozone, as Europe imports part of its inflation, not only through oil prices, but also through the prices of processed products and transport. Dependent on imported fossil fuels, Europe remains vulnerable to geopolitical crises. Iran responded to the American offensive in February by blocking the Strait of Hormuz. Supported by Tehran, the Houthis of Yemen have in turn established a partial naval blockade of the Bab el-Mandeb Strait, blocking maritime access to the Arabian Peninsula.

Eight months after the start of the conflict, Brent averaged $125 during the first three weeks of October, after crossing $130 on October 8. An increase of 75% compared to the day before the conflict. Markets anticipate a gradual decline towards $100 by the end of 2026.

Two additional weeks of navigation

The use of alternative export routes – Saudi East-West pipeline; Emirati oil pipeline leading to Fujairah; beyond Hormuz, land transport – and the increase in production outside the region had relaxed the markets somewhat until the summer. But the situation got worse again. Attacks on Saudi oil tankers in the week of July 20 were followed by those targeting towns in southern Saudi Arabia in early September, against a backdrop of intensifying fighting in Yemen. On September 19 and 20, Aramco facilities and Riyadh airport were targeted; the latter was again twenty times during the first half of October.

The activation, for dissuasive purposes, of the Saudi defense agreement with Turkey and Pakistan, a nuclear power, reinforces the fear of a stagnation, or even an extension of the conflict. Even if the attacks officially target only commercial ships linked to Saudi Arabia, Bab el-Mandeb, a passage to the Red Sea and the Suez Canal, has become unfit for navigation.

Machine-translated from French