The Real Global Oil Crisis Has Not Begun - Yet. Gird Your Loins….
Here’s what we know:
The world gets about 20% of its oil via the Strait of Hormuz. The Strait has been closed or nearly closed since the United States launched its war with Iran.
That launch date was February 28th. Today is July 13th. We’re approaching five months of little to no oil getting through the Strait.
That’s so far resulted in 1+ billion fewer barrels in global circulation.
Here’s what we don’t seem to know:
We seem to be nowhere near an end to the war - or the Strait’s closure. And even when we are told we were near an end to the closure?
Like, say, with the irrational exuberance on rampant display with June 14th’s “Memorandum of Understanding?”
Like, say, with the ridiculous number of times President Donald Trump has lied about being close to a peace deal (38 times - and that’s just the tally prior to the “Memorandum of Understanding”).
Most of us have been pretending that once the Strait reopens - everything will simply and immediately snap back to normal. Heck, most of us still are pretending.
Far too many Americans have for months been taking victory laps about oil and gas prices. Most of which are predicated upon President Trump’s many lies and falsehoods. None of which are predicated upon anything having to do with reality.
Reality: You can not skip five months’ (and counting) worth of Strait oil - and simply return to pre-war normal.
The Strait’s closure is a great and growing air bubble in the world’s oil supply line. The bubble doesn’t just disappear when the war ends and the Strait reopens (whenever that will eventually be). It will still be there. And it will have to work its way through the system.
Thanks to many desperate moves by many countries all around the world? The bubble’s arrival has been delayed. But it can not be permanently denied:
“The world has absorbed with surprising ease the loss of over a billion barrels of oil supply since the Iran war began, but…it still faces the looming risk of future price spikes….
“While prices may reflect expectations of a rapid return to pre-war supply levels, data on tanker traffic through the Strait of Hormuz tells a different, more pessimistic story….
“The global economy weathered the shock by drawing down stocks at a record pace, according to IEA data, draining the very buffers designed to protect it from supply crises….
“Replenishing oil stocks, never cheap, has likely been made more expensive by the war.
“Before the conflict, the European Central Bank had estimated 2027-2028 oil prices at $63 to $64 per barrel. That’s now risen to an average of $65 to $75, according to an ECB report published in June.
“At current Brent prices, it would likely cost more than $70 billion to replace reserves drawn down to mitigate Iran war supply loss….
“(U)ntil that is done, the world is operating without a safety net in an environment still fraught with uncertainty.
“‘The markets may be underestimating the risk of further oil flow disruptions,’ said Saul Kavonic, head of research at MST Marquee.”
“Underestimating?” Gee…ya think?
All of the above reminds of two great quotes from minds of the past. Who were much more in tune with the real world than far too many of us are today.
“You can ignore reality, but you cannot ignore the consequences of ignoring reality.”
-- Ayn Rand
“Eventually everybody sits down to a banquet of consequences.”
It’s time to lobster bib up. Reality’s meal is about to be delivered.