(March 14): The worst supply disruption in the history of the oil market is showing no signs of abating anytime soon, offering the global economy little respite from crude prices that have surged 40% since the Iran war began.
In the first few days after the US and Israel bombed Iran, some traders said they thought the closure of Strait of Hormuz, for years the oil market’s worst-case scenario, could be brief. Now, fully two weeks in, they are bracing for longer disruption and one that with every passing day is reducing supply.
Mojtaba Khamenei used his first comments as Iran’s new leader this week to say his country should keep the waterway closed. At the same time, US President Donald Trump posted on social media that stopping Iran from having nuclear weapons was more important to him than high oil prices - even as his country led a record global release of emergency stockpiles.
For shipowners, who are almost all avoiding Hormuz, their comments will reinforce wariness about transits after a week that included multiple attacks on commercial vessels, one of which left three crew members unaccounted for. There have also been reports — contested by the US — that Iran is starting to lay mines in the maritime chokepoint. Norway, among the world’s top maritime nations, has told its fleet to stay away.
“We understand that the situation has deteriorated further, and that we are now experiencing a greater degree of insecurity,” Alf Tore Sorheim, the country’s director of maritime affairs, said. “Conditions remain very dangerous for commercial shipping.”
See also: European gas slips as traders grapple with mixed news on Hormuz strait
For Trump, allowing Hormuz to stay shut is a high-stakes decision that’s already driven up gasoline prices at the pump to the highest of any point in his presidency — with midterm elections taking place later this year.
If hostilities did stop, and Iran assured ships of safe passage, then millions of barrels would flood back into global markets, and help to bring oil and fuel prices crashing back down.
Instead, traders have been grappling with giddying volatility.
See also: US Treasury allows more Russian oil sales to help tame prices
In just two days this week, prices soared up to US$120 a barrel before crashing back down to just above US$80 — a bigger swing in 48 hours than the entire trading ranges of the prior three years. Brent futures are now near US$100 ($128.16).
Supply impact
And the market impact is growing by the day. Middle Eastern producers have already shut in more than six million barrels a day of oil production.
The International Energy Agency (IEA), the world’s main energy adviser, says the Hormuz blockage is causing the biggest supply disruption on record, and fuelmakers are curbing output, reductions that can take weeks to reverse.
Consuming nations — led by the US — embarked on an effort to tame prices this week, starting with plans to release 400 million barrels of oil from storage across the globe.
Some are adopting protectionist measures to keep fuel supplies at home, including levies and export restrictions. US officials have also publicly considered intervening directly in futures markets, though some downplayed the prospect of such a move.
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All of those measures are sticking plasters compared to the full closure of Hormuz, and the toolkit for taming oil prices is emptying fast.
The IEA estimated on Thursday that more than 600 million barrels of oil and fuel flows via Hormuz will be disrupted this month, and almost 250 million barrels of Middle East oil production.
“Every day the strait remains shut, we are closing now more and more upstream production,” Amrita Sen, co-founder of consultant Energy Aspects, said in a Bloomberg TV interview. “We should be a lot higher. There is fear about US policy intervention, but the US is also running out of options.”
Saudi Arabia, the largest producer in the region, is now pulling every lever it can to keep supplying barrels to refineries around the world.
The boss of Saudi Aramco said this week that he expects a pipeline across the country to its Red Sea coast to soon be up to its full capacity, which will allow about 5 million barrels a day of exports.
A flotilla of supertankers that stretches from the Red Sea to Singapore is on its way to haul those barrels.
It’s a logistics feat that has never been tested to this extent before, and traders are watching closely to see how quickly Saudi Arabia gets those flows fully up and running. Exports are now up to about 2.9 million barrels day.
The bypass might be needed for a while.
Seven ships were hit this week in the Persian Gulf and surrounding area. One vessel was struck in the middle of Hormuz while attempting to escape.
The UK said on Thursday that reports Iran was mining the waterway “have become clearer and clearer,” though US Secretary of War Pete Hegseth insisted a day later that there was “no clear evidence” that Tehran had done so.
Emergency stocks
One of the brakes on prices will be the pace at which countries release oil from their emergency reserves.
In 2022, when an equivalent programme was launched, the US managed to release at a rate of about 900,000 barrels a day for a three-month period — a pace that Energy Secretary Chris Weight subsequently said caused damage.
But it’s unclear how fast Asian nations like Japan will be able to get their reserves to market. Buyers there are currently more in need than the rest of the world.
Regardless, none of it can replace Hormuz if it stays closed for a prolonged period.
“With the release of strategic oil stocks, this is essentially symptom treatment,” said Arne Lohmann Rasmussen, the chief analyst of A/S Global Risk Management. “It does not solve the underlying problem that the Strait of Hormuz remains closed. And there is currently no sign of it reopening anytime soon.”
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