“Oil hole” as big as all of Europe - crazy to raise interest rates”
If the Riksbank raises interest rates in response to the Iran war, it would be as intelligent as deploying snow cannons to combat a winter storm.
The problem the world is facing is much worse than just higher prices.
What will happen next in the Iran war?
Judging by master strategist Donald Trump's latest statements, it is the responsibility of the outside world to clean up the mess he has caused. Those who want oil can go to the Strait of Hormuz and “get it” while the US is about to withdraw.
Sort of like someone hiding a full diaper under the sofa and declaring that the problem is gone. For some strange reason, the stock market took this as a sign that the war would soon be over.
At the beginning of the conflict, market interest rates rose sharply. This is what caused several Swedish banks to raise their mortgage rates (the fact that they did not raise their savings rates at the same time goes without saying, welcome to Oligopoly Sweden).
They should have had more ice in their stomachs.
Before the war, interest rate cuts from the Riksbank and other central banks were expected. This quickly turned into the market starting to count on several rapid increases to slow the inflation that inevitably becomes the consequence when the price of oil skyrockets.
But in recent days, things have gone the other way – interest rates fell back even before Trump's latest air pies.
Behind the U- turn was no hope that the war would soon be over. If anything, the situation has worsened in recent days with continued attacks on infrastructure both in Iran and in the Gulf states and more American troops on the way
And Trump's hint that he wants to slouch does not change the fact that Iran controls the Strait of Hormuz.
The decline in interest rates is instead about the consequences for the world economy threatening to be significantly greater than many have understood.
Basically, it's all about mathematics: counting barrels of oil (which contain 159 liters each, for those wondering).
Before the war, the equivalent of 20 million barrels a day were transported through the Strait of Hormuz.
It is very much a given that the world's daily consumption in 2025 was 104 million barrels, according to the energy agency IEA.
Now traffic through the strait is almost at a standstill, with only a few ships being allowed through by Iran.
Some of the loss has been compensated for by Saudi Arabia and the United Arab Emirates pumping oil westward into the Red Sea and by several countries easing their oil reserves.
But it is not enough to cover the 20 million barrels. The gap is between 8 and 12 million barrels of oil per day, depending on which expert you ask.
But it is not just about reduced deliveries but also about production having decreased, both due to damaged facilities and because there is no way to export the oil.
It is about at least 10 million barrels a day.
What does thismean? Well, that if the situation does not improve very soon, a “hole” of 10 million barrels of oil a day will arise, where supply is simply not enough to meet demand.
The entire EU consumed 10.5 million barrels a day in 2025, according to the IEA.
The hole is therefore as big as Europe. Or 33 times Sweden's consumption.
Over time, the loss will grow because the emergency stocks of oil that are currently being used will not last for long.
The hole is moving around the world as the oil and gas that were shipped from the Middle East before the war will soon be used up while no new ships arrive. Asia is already experiencing a crisis, and in Europe the situation is expected to become worrisome in a couple of weeks at the latest.
The Financial Times writes that the last cargo of jet fuel will arrive in the UK this week. No more are on the way. The price has already doubled in a short time.
When such a large gap arises between supply and demand, there are only two solutions.
Either there will be a glut, which will push prices up to record levels, or consumption will drop drastically. The latter has already begun in Asia, where governments have introduced various measures to save fuel.
In Europe, several countries have responded by lowering taxes on gasoline, a path that the Swedish government has also chosen. However, France has pointed out that this does not help but only keeps consumption up.
And in recent days, the tone has changed within Europe. The EU Commission is urging member states to try to reduce energy use and prepare for “long-term disruptions.”
In an interview with Aftonbladet, Finance Minister Elisabeth Svantesson said that rationing cannot be ruled out.
Oil is also just one of many goods where supply is threatened. Fertilizer and the gas helium are two examples of vital products where the Iran war has knocked out a large part of the supplies.
How should central banks act?
Raising interest rates in a situation where a temporary shock is driving up prices risks being counterproductive.
It will not open the Strait of Hormuz and definitely will not lower oil prices. Instead, it will only make everything even more expensive and the economy shrink even more.
The difference is large compared to 2022 when the economy was extremely stimulated and interest rates were already down to zero when inflation took off.
It is much more reasonable this time to instead lower interest rates to try to mitigate the consequences of an economy that is slowing down.
When Federal Reserve Chairman Jerome Powell was interviewed on Monday, he also downplayed the need for an interest rate hike.
Let's hope that the Riksbank thinks the same way. And that the big banks calm down.
If the war continues, higher interest rates are the last thing Sweden needs.
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