Key insights
- The article suggests a severe oil supply shock is imminent due to disruptions in the Straits of Hormuz, potentially exceeding previous shocks. Limited oil reserves in Southeast Asia and EU's dwindling jet fuel supplies exacerbate the crisis. Infrastructure damage and logistical challenges will delay recovery, impacting Asia and Europe, with spillover effects to the US. High gas prices historically correlate with a 50% recession risk in the US, suggesting a significant downside risk to US equities.
I did a lot of research. IEA says this is the biggest shock worse than the past 3 shocks *combined*.
Southeast Asia has the least amount of oil reserves. Poor countries have between 1-3 months of reserves.
The last shipment from hormuz have arrived in US, Asia and EU. No more ships now, maybe just a few to China. Many countries are likely to be drawing from their reserves now
IEA just said EU has 6 weeks of jet fuel left.
Even if we open the straits now:
- bring in mines clearing equipment takes weeks 2. clear mines take weeks 3. there will be chaos initially 4. most ships cannot sail until the straits is safe 5. loading and unloading from docks, transport to refineries, restarting refineries 6. there could be a mad rush to hoard oil or replenish reserves, driving up prices, knowing that the straits may close again.
30-40% of gulf energy infra is damaged, in some cases they need months or years to repair.
Oil wells are shut and need time to ramp up again.
some of these are being done in parallel right now, but realistically, it would still take at least 2-3 months for countries to receive normal supply of oil.
It seems almost certain a shock is unavoidable and Asia and EU economies will take a hit. EU is already having slow growth . Impact will spill over to the US . It is not fully insulated. Asia is still the manufacturing center. cost of goods will go up
The longer it takes to open the straits the higher the risk.
Historically, when there is an oil shock/high gas prices, there is roughly a 50% chance of recession in the US
is the market in denial of the potential problems because most things are still normal right now except for gas prices?
and there is still the problem of fertilizer and helium
What do you think?