Key insights
- The article suggests a major, multi-year oil supply shock due to geopolitical conflict, dwarfing the 1970s crises. Even with a ceasefire, rebuilding energy infrastructure will take years. The market hasn't fully priced in this supply deficit, implying a potential for significant oil price increases, which could lead to higher inflation and negatively impact US equities.
Everyone's watching the Strait of Hormuz. That's not the real issue.
MST Financial's Saul Kavonic: even if the Strait reopened tomorrow, there's barely anything left to ship. You can reopen a shipping lane in days. Rebuilding energy infrastructure takes 3 to 5 years.
The strikes physically erased nearly a fifth of the world's gas supply. Not delayed. Gone.
IEA's Fatih Birol confirmed the 1970s shocks knocked 5 million barrels per day offline each. Current disruption: 11 million barrels per day. More than both 1970s shocks combined, and the war is still ongoing.
Trump announced a 5-day pause on strikes. Markets bounced. A pause doesn't rebuild a refinery. The infrastructure deficit doesn't care about the diplomatic calendar.
The repricing hasn't happened yet. When institutions figure out this is a multi-year supply hole with zero spare capacity buffer, oil goes up with or without a ceasefire.