Uche Cecil Izuora
Fears of another round of significant market disruptions has erupted as the Strait of Hormuz is once again closed for business, after hopes briefly rose last week that traffic through the narrow waterway between Iran and Oman would resume.
Concerns are mounting that the cease fire between the United States and Iran might collapse after the U.S. Navy seized an Iranian cargo ship that tried to run its blockade and Iran vowed to retaliate.
Oil prices whipsawed accordingly, with Brent crude rising over 5 per cent to above $95 a barrel on Monday after tumbling 9 per cent on Friday.
The world lost over $50 billion worth of crude oil that has not been produced since the Iran war began nearly 50 days ago and the aftershock of the crisis will be felt for months and even years to come, according to analysts and Reuters calculations.
Iranian Foreign Minister Abbas Araqchi said on Friday the Strait of Hormuz was open following a ceasefire accord agreed on Lebanon, while U.S. President Donald Trump said he believed a deal to end the Iran war would come “soon”, though the timing remains unclear.
Since the crisis began at the end of February, more than 500 million barrels of crude and condensate have been knocked out of the global market, according to Kpler data – the largest energy supply disruption in modern history.
Put differently, 500 million barrels of oil lost to the market is equivalent to curtailing aviation demand globally for 10 weeks; no road travel by any vehicle globally for 11 days; or no oil for the global economy for five days, said Iain Mowat, principal analyst at Wood Mackenzie.
Nearly a month of oil demand in the United States, or more than a month of oil for all of Europe, according to Reuters estimates.
Roughly six years of fuel consumption for the U.S. military, based on annual usage of about 80 million barrels from fiscal year 2021.
Enough fuel to run the world’s international shipping industry for around four months.
According to the calculations Gulf Arab countries lost about 8 million barrels per day of crude production in March, nearly equivalent to the combined production of Exxon Mobil and Chevron two of the biggest oil companies in the world.
Jet fuel exports from Saudi Arabia, Qatar, the United Arab Emirates, Kuwait, Bahrain and Oman fell from about 19.6 million barrels in February, to just 4.1 million barrels for March and April so far combined, according to Kpler data. The loss in exports would have been enough for around 20,000 round-trip flights between New York’s JFK airport and London Heathrow, according to Reuters estimates.
With crude prices averaging around $100 a barrel since the conflict began, those missing volumes represent roughly $50 billion in lost revenues, said Johannes Rauball, a senior crude analyst at Kpler.
That equates to a 1 per cent cut in Germany’s annual gross domestic product, or roughly the entire GDP of smaller countries such as Latvia or Estonia.
The recent days’ events in the Mideast highlight just how complicated to will be to truly end the Iran war. Since the start of the conflict on February 28, futures oil prices have reflected the belief that the war and the closure of the Strait of Hormuz would be short-lived as would the disruption to the supply of crude and refined products.
In effect, since the bombing started, the paper crude market has mostly appeared to believe U.S. President Donald Trump’s social media posts arguing that the conflict will be short and the economic pain will be temporary.
The problem, ROI Asia Commodities Columnist Clyde Russell is that the reality on the ground doesn’t match President Trump’s claims. The energy crisis is real, and the longer the strait remains closed, the more severe it will become.
While uncertainty regarding the transit through Hormuz remains sky high, one thing is already clear: even if the guns fall silent, flows through the narrow waterway will take months.