The biggest oil supply shock in history has reached the one-month mark. Prices have surged, growth forecasts are being cut worldwide, and shortages are emerging across Asia, from Thailand to Pakistan.
But the energy industry is warning that the crisis is only beginning.
In conversations with more than three dozen oil and gas traders, executives, brokers, shippers and advisers over the last week, one message was repeated over and over: The world still hasn’t grasped the severity of the situation. Many drew parallels with the 1970s oil shock, warning the closure of the Strait of Hormuz is threatening an even bigger crisis. Fuel crunches hitting Asia will soon start spreading west, they said. Europe is likely to face surging prices to secure cargoes and is at risk of diesel shortages in the coming weeks.
Oil prices could hit $200 per barrel if the war in Iran persists through the end of June, according to strategists from Macquarie Group.
If the war were to stretch well into summer, the strategists wrote in a client note on Wednesday, prices would need to move high enough to “destroy an historically large amount of global oil demand,” likely requiring Brent crude prices above $200 per barrel and pushing US gasoline prices up to roughly $7 per gallon.
Beneficiaries: Big Oil. Trump finally pays off big for his donors.
Attendee at last week’s big oil/gas conference in Houston, “I’ve been stunned by how joyous the mood is.”
But not without a creeping “sense of foreboding”.
In Punjab, farmers are beginning to panic.
India’s agricultural heartland is feeling the reverberations of the war in the Gulf, according to Rajpal Singh, who grows rice, wheat and corn in the region. People were already struggling to access fertiliser due to government controls, Singh says.
Now, with the start of the rice planting season just three months away, the war is threatening to choke supplies of vital crop nutrients entirely. It has already meant six-to-eight-hour power cuts in his village an hour-and-a-half’s drive from the city of Ludhiana. “We fear if the war goes on for long it will be tough for us farmers and food production too will be affected,” he says. “We don’t yet know how big the crisis will be.”
Some 7,000 miles away in west central Minnesota, Brandon Fronning is one of the estimated 25 per cent of US farmers who had been holding off buying fertiliser when the US and Israel first struck Iran on February 28. “I was hoping prices would soften, credit would improve,” Fronning says. “But with this recent spark of war, it has just been out the window. It is just insane. All the prices are just skyrocketing.”
With corn planting just three to four weeks away, he is looking at huge losses — if he even manages to buy enough fertiliser. “With the economic climate we have now, it’s hard to find credit, it’s hard to find cash.”
Another oil shock steming ‘unforseeably’ from another MidEast War of Choice. Who could have imagined such a thing? For only the third or fourth time in the last few decades? If I weren’t so angry at all versions of Muslim, I might begin to suspect this is about something else…