Strait of Hormuz closure creates persistent inflationary pressure

Lynn Alden identifies the closure of the Strait of Hormuz and resulting refinery damage in the Middle East and Russia as the most significant macro event of the last 20 years. While crude oil prices have not spiked as catastrophically as predicted due to China's flexible import reductions and Strategic Petroleum Reserve drawdowns, the crack spread, or the difference between crude and refined products like diesel, has widened significantly. Diesel prices have risen 70% since February. Alden notes that building new refineries is prohibitively slow and expensive, locking in supply constraints. She warns that if the US Strategic Petroleum Reserve becomes too low to offset further supply disruptions, oil prices could rise by another $20 per barrel. Alden argues that the economy is currently experiencing the equivalent of $120-plus oil due to high crack spreads. While this creates near-term liquidity shocks, she contends it reinforces the long-term case for holding assets that hedge against currency debasement.