The virtual closure of the Strait of Hormuz has triggered an energy crisis that is draining global oil inventories at a record pace. Since the start of the U.S.-Israel war with Iran in late February, traffic through the critical choke point has thinned from 1,500 tankers a month to just 180 in April. This disruption has removed 12% of global oil consumption from the market, forcing the world to rely on rapidly shrinking commercial and strategic stockpiles.
The inventory crunch. Global oil stocks fell from 8 billion barrels in February to 7.8 billion by the end of April, according to UBS. Analysts at JPMorgan warn that the global supply chain could begin to stress as inventories approach 7.6 billion barrels, a level that leaves only 800 million barrels of truly available volume to maintain system circulation. Rapidan Energy predicts that if the strait remains closed, product inventories will hit critical levels by July or August, potentially causing the global economy to seize up as transportation infrastructure fails to source fuel.
Winners and losers
The economic impact has been split between countries with alternative export routes and those dependent on the strait. The United States and Russia have emerged as primary beneficiaries, though for different reasons:
- U.S. companies have increased exports of oil and diesel to help cover the global shortfall, though most revenue is flowing to investors and landowners rather than new drilling.
- Russia’s oil revenue has climbed as prices soar; Russian oil sold off the Gulf of Finland reached $120 a barrel in April, up from $41 before the war.
- Saudi Arabia and the UAE have mitigated losses by using expensive pipelines to bypass the strait, whereas Iraq, Kuwait, and Qatar have seen exports plunge.
The price shock has extended far beyond crude oil. Jet fuel prices in Europe have nearly doubled to $1,500 a tonne, leading to widespread airline schedule changes and warnings of a severe kerosene shortage by June. In the U.S., the car industry is facing doubled commodity costs as the price of aluminum rises and a new 50% tariff on imports takes effect. If the strait remains closed through the summer, U.S. petrol prices are forecast to surpass $5 a gallon.
