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Where the Viral Equation Overreaches
A memorable line is not automatically a complete economic theory. The most questionable claim in the post was that r∗r^*, the neutral or equilibrium real interest rate, had ceased to be neutral and had simply become a “Strait of Hormuz risk premium” set by Iran.
That is rhetoric, not a defensible definition of r∗r^*.
The neutral rate is an unobservable estimate influenced by productivity, demographics, savings, investment demand, fiscal conditions, risk preferences and the structure of the financial system. A sustained geopolitical shock may affect estimates of equilibrium conditions, financial premia and potential output, but one state does not simply announce ownership of the global neutral rate. Iran may influence the risk. Markets price that risk. Importers adapt to it. Governments release inventories. Producers adjust supply. Consumers reduce demand. Pipelines, alternative ports and substitute grades begin eroding the original leverage.
The better formulation would therefore be:
Chokepoint power=initial leverage−self-exposure−substitution−adaptation
A chokepoint can trigger an enormous shock without controlling its final economic outcome. The country creating or exploiting the disruption may also suffer lost exports, discounted sales, currency pressure, insurance costs and domestic shortages. Market power is rarely the same thing as immunity.
This is why “we set the premium” is too absolute. A geopolitical actor can inject risk into the system, but the size and persistence of the premium emerge from the interaction of actual disruption, credibility, inventories, spare production, alternative routes and expected duration.
Why Hormuz and Bab el-Mandeb Matter
The Strait of Hormuz is not important because social media says it is important. It is important because an extraordinary concentration of globally traded energy must pass through a geographically restricted corridor. The US Energy Information Administration classifies it among the world’s most important oil-transit chokepoints and warns that even temporary disruption can delay supply and raise shipping costs.
Bab el-Mandeb performs a different but connected role by linking the Red Sea and the Gulf of Aden. Disruption there affects access to the Suez route, forcing vessels to consider longer voyages around Africa. Distance then becomes cost: more fuel, more crew time, more vessel capacity tied up in transit and higher freight rates.
Adding both straits to a Taylor-style equation was therefore intellectually provocative because it treated physical infrastructure as an endogenous macroeconomic variable. A shipping lane is no longer external background scenery when its disruption changes inflation, growth, fiscal balances, interest-rate decisions and political stability.
Yet the two terms cannot simply be inserted into a formula and considered measured. What exactly is SOHSOH? Is it the percentage of normal traffic passing through, an insurance index, the difference between benchmark oil prices, tanker availability or expected closure duration? What is the baseline SOH∗SOH^*? How should α\alpha be estimated? Would the coefficient remain stable as strategic inventories are released?
Until those variables are defined, measured and tested, the Straits Taylor Rule remains a powerful metaphor—not an operational policy rule.
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