The Oil Supply Shock Will Scar the World for Years
- The prolonged closure of the Strait of Hormuz has abruptly shut in over 10 million b/d of oil, unleashing the largest supply shock in history and instantly escalating recession risks.
- However, even if the Strait reopens, oil production recovery will take months to years, with damaged wells, complex restarts, and export flows slow to normalize.
- Furthermore, with most spare capacity trapped in the Gulf and no global substitute, hundreds of millions of barrels are already lost, ensuring lasting impacts on prices and the global economy.
The Middle East’s oil production and the global economy will take months, if not years, to recover from the worst crude supply shock in history.
Two months after the U.S. and Israel bombed Iran on February 28, the Strait of Hormuz remains closed for most tanker traffic, forcing more than 10 million barrels per day (bpd) of crude output shut-ins across the Middle Eastern oil producers. The disrupted energy flows triggered a global race for alternative supply, sending energy prices soaring amid the prospect of slowing global economic growth and even a global recession if the world’s most critical oil chokepoint remains mostly inaccessible for another three months.
The closure of the Strait of Hormuz, lasting from late February to the current two-month mark, has already surpassed initial analyst expectations at the war’s outset. Most analysts believed in early March that the strait would reopen by April and that producers could restart shut-in wells in May. Read More