The largest oil supply shock in history has persisted for a month. Oil prices have soared, and global economic growth expectations have been revised downward. From Thailand to Pakistan, oil shortages have emerged across Asia.
But the energy industry warns that this crisis has only just begun.
Many industry executives draw parallels between this crisis and the oil crisis of the 1970s, and warn that the closure of the Strait of Hormuz could trigger an even greater crisis. They say that fuel shortages will soon spread westward. Europe may face soaring prices to ensure the supply of goods, and diesel shortages could occur within the next few weeks.
In my view, if this crisis lasts for more than three or four months, it will become a global systemic problem, TotalEnergies CEO Patrick Pouyanne said at the CERAWeek conference in Houston.
A simple rough estimate indicates that even taking into account the intervention measures taken so far to make up for the losses, the closure of the Strait of Hormuz still led to a reduction of about 11 million barrels per day in global oil flow. Compared with the pre-war demand level, this has created a gap of about 9 million barrels – a huge gap that exceeds the total oil consumption of the United Kingdom, France, Germany, Spain and Italy.
The release of large-scale emergency reserves and the US’s exemption of sanctions on Russian and Iranian oil have bought some time, but these intervention measures are ultimately limited. Once these measures are exhausted, it is still unclear what other means President Trump has at his disposal to prevent a sharp rise in global oil prices in the short term, apart from fully reopening the Strait of Hormuz. Iran has allowed a small number of foreign vessels to pass through the waterway, but so far, the number of these vessels has been negligible and has had no impact on the situation.
From a broader perspective, with oil prices at around $110 per barrel, the SHOK model of Bloomberg Economics predicts a significant but manageable increase in oil prices, while economic growth will be impacted. In the eurozone, these effects will cause the annual inflation rate to drop by approximately 1 percentage point and GDP to decline by about 0.6%.
But if the closure of the Strait of Hormuz persists until the latter part of the second quarter, oil prices could rise sharply. Once the price of oil reaches $170 per barrel, the impact on inflation and economic growth will almost double – this will trigger a stagflation shock and could change everything, including the future policy direction of central banks around the world and the outcome of the US midterm elections.
