How a Strait of Hormuz Closure Would Affect Austria. Evidence from the KITE Model

Sujata Pokhrel
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Sujata Pokhrel: WIFO

No 3, WIFO Research Briefs from WIFO

Abstract: The Strait of Hormuz has been closed for more than two months, and with escalating tensions and failed negotiations, a prolonged closure appears likely. The KITE Computable General Equilibrium (CGE) model effectively captures the ongoing trade disruptions by simulating Gulf energy export shocks under both short-run (low substitution) and long-run (greater adjustment) scenarios. In the short run, Austria faces moderate negative effects: welfare declines by 0.15 percent, real wages drop by 0.15 percent, production loss equals 0.14 percent, and consumer prices rise by 0.15 percent, relative to the baseline, showing vulnerability through worldwide price spillovers. Long-run impacts are smaller: welfare loss falls to about 0.05 percent, and production nearly returns to baseline, highlighting the importance of short-term resilience measures like diversification, stockpiling, and targeted support for exposed sectors. Nevertheless, long-run adjustment does not eliminate the losses. The blockade of the Strait of Hormuz has far-reaching economic effects: in the short run, prices for crude oil rise by 12.1 percent, petroleum products by 8.3 percent, and natural gas by 7.9 percent, with spillovers into chemicals, electricity, plastics, and food, demonstrating how geopolitical shocks propagate through the economy.

Pages: 9 pages
Date: 2026-05-07
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