The ongoing conflict in the Middle East continues to worsen the energy crisis as each day passes. Prices of essential commodities like gas, oil, jet fuel, and plastics are on a steep rise. The situation is poised to deteriorate significantly within the next one to two weeks.
Since the commencement of the war on February 28, energy shipments came to a halt, and the closure of the Strait of Hormuz by Iran further exacerbated the crisis. Despite some vessels managing to set sail before the conflict erupted, the last of these ships are expected to reach Japanese and Korean ports in the next 8-10 days.
However, the aftermath is grim, with a noticeable absence of incoming shipments thereafter. This hiatus amounts to approximately half a billion barrels of oil that would typically flow through the strait, creating a substantial void in the energy supply chain.
The distinction between paper oil (contracts representing potential shipments) and physical oil (actual barrels in transit) is crucial in the oil industry. Currently, there is a shortage of paper oil, but once the final shipments reach their destinations, the scarcity will shift from the theoretical realm to the practical one.
To address the looming crisis, global governments have agreed to release 400 million barrels of oil from strategic reserves. Additionally, the United States has eased sanctions on refiners in Iran and Russia to mitigate the supply shock. Despite these measures, Japan’s Vice Minister for International Affairs, Takehiko Matsuo, has expressed concerns that the released reserves are insufficient to resolve the supply constraints.
Meanwhile, natural gas futures prices have surged even more than oil since the onset of the conflict, with Asian benchmark JKM futures experiencing a 90% increase. The blockage of around 120 billion cubic meters of gas transit through the Strait of Hormuz poses a significant challenge, affecting various countries differently based on their reliance on natural gas imports.
Countries like Pakistan, heavily dependent on energy imports, are already feeling the impact, leading to measures such as a shortened workweek for government employees and school closures. The uncertainty surrounding the resumption of normal shipments through the strait and the slow pace of tanker movements further exacerbate the situation.
Analysts predict that the Strait of Hormuz may remain impassable until May, with geopolitical tensions likely disrupting trade until the end of September. This prolonged disruption is expected to result in a substantial energy deficit in certain countries for months, underscoring the severity and duration of the crisis. At the same time, industry experts are cautiously optimistic but acknowledge the gravity of the situation and the challenges in restoring oil flows promptly.