End of the beginning – the state of global energy markets after ten weeks of war
10 hours ago
- #global supply chains
- #Gulf war impact
- #energy markets
- Global energy markets are severely disrupted after ten weeks of war, with the Straits of Hormuz closed since early March, reducing daily vessel traffic from 100-140 to a trickle and leaving 1900-2000 ships stranded.
- Energy shortages are focused on refined oil products like jet fuel and diesel, not just crude oil, due to attacks on Gulf infrastructure, including refineries and LNG facilities, with repairs potentially taking months to years.
- Europe relies heavily on Gulf imports for jet fuel (60%) and diesel, leading to global shortages, rising prices, and drawdowns of 400-500 million barrels of stocks, which will need rebuilding.
- Alternative supply routes are limited, with constrained pipeline capacities in Saudi Arabia and Oman, and most spare oil production located in Gulf states behind the blockade; U.S. increases face infrastructure limits.
- Shortages extend beyond energy to petrochemical feedstocks and fertilisers, disrupting global supply chains for plastics, packaging, textiles, and agriculture, risking higher food prices and potential famine in vulnerable regions.
- The shipping industry faces increased costs from rerouting via the Cape of Good Hope, higher insurance premiums, and fuel prices, affecting freight rates and commodity flows like iron ore.
- Government responses have been gradual, with private contingency plans emerging, but public rhetoric from leaders like Germany's Friedrich Merz and the UK's Kier Starmer indicates serious economic and strategic concerns.
- Impact varies by country: Germany, France, Italy, the UK, and Japan are highly affected due to import dependence, while the U.S. is self-sufficient, and China has stockpiles and coal reliance; poorer nations like Bangladesh suffer disproportionately.
- Market optimism for a quick resolution has waned as the ceasefire remains fragile, with forward price curves potentially underestimating sustained disruptions if the Straits stay closed.
- Long-term, the conflict highlights vulnerabilities in globalised supply chains, pushing discussions towards energy independence via renewables and nuclear, though oil and gas dependence will persist for decades.