A false sense of security
Intelligence
A false sense
of security
Six weeks ago, oil markets were pricing a 3 million barrel per day surplus for the first quarter of 2026. Traders were bearish. Analysts were debating whether balances were long by 3 mb/d or 2.5 mb/d. The prevailing view was that supply had the upper hand — and there was an unusually clear consensus.
Then the U.S. raided Iran and killed Iran's supreme leader Khamenei in the first night. And shortly after, the unthinkable happened. The scenario oil markets had been preparing for 30+ years materialised: the Strait of Hormuz closed.
supply impact
losses
fuel $/bbl
through SoH
The arithmetic is straightforward. With roughly 11 mb/d restricted through Hormuz and the disruption now approaching 50 days, the annualised supply impact runs to approximately 1.5 mb/d — a figure that climbs to 2.1 mb/d if the disruption extends to 70 days once reopening logistics are factored in. Refined product shortages are now a near-term reality for key Asian economies — Japan, South Korea, and India, all of them refining hubs for several smaller economies. Jet fuel in Europe has broken $200 per barrel, grounding routes.
And the world is only now beginning to grapple with a simple truth that gets forgotten in every cycle: geopolitics doesn't telegraph itself. It arrives.
Though in perspective — Trump warned us. He intervened in Venezuela, tried to take over Greenland, just weeks before acting on Iran. The military build-up pattern was strikingly similar: several weeks of obvious preparation before action. The signals were there.
"Six weeks ago the trade was short Brent. Today the question is when demand destruction materialises and how deep it runs. The market didn't miss the data — it missed the politics. It always does."
— Crude Oil DeskThe closure nobody fully priced
The Strait of Hormuz — the narrow waterway through which roughly 20% of globally traded oil passes — effectively closed in early March. Transit dropped to below 20 vessels per day, against a normal level of close to 100 vessels per day.
The immediate supply impact was severe. Middle East crude and condensate exports fell by approximately 11 mb/d from pre-disruption levels. Saudi Arabia and the UAE managed to limit losses to around half their normal export volumes by rerouting through the Red Sea port of Yanbu. Iraq, Kuwait, and Qatar were harder hit, seeing near-complete halts for several weeks. (It is sobering to say that so matter-of-factly.)
The IEA's emergency tracker confirms what the tanker data shows: this is not a temporary blip. Meanwhile, a brief window on April 18th — when a small group of vessels managed to transit — closed quickly. The blockade held.
The vulnerability map
The breakdown across Asia is stark — and not widely understood in its full detail.
| Country | Hormuz dependence | Coverage | Bar | Risk |
|---|---|---|---|---|
| China | ~40% | 17 months | Resilient | |
| Japan | ~75% | 4.5 months | Exposed | |
| India | ~40% | 2 months | Watch | |
| South Korea | ~70% | 1.5 months | Critical |
China faces the largest absolute import loss — ~3 mb/d in April vs. February — but holds ~1,400 million barrels in combined commercial and strategic inventory. China has been accumulating reserves at an accelerated rate for the last 3 years — perhaps China knew this was inevitable. China hurts, but China endures.
Japan and South Korea hold inventories that are predominantly government-controlled strategic reserves rather than commercial stocks. The distinction matters — SPR release requires political authorisation and days to reach refineries, while commercial stocks respond instantly to price signals. Operational flexibility is more constrained than the headline coverage figures suggest.
South Korea is the most acute near-term concern — 1.5 months of coverage, ~70% Hormuz dependence, and steep product export declines already running at -400 kb/d.
The clock is ticking at different speeds. In Seoul, it is ticking fast.
Where I stand vs. consensus
The consensus among major forecasting agencies currently sits around $85/b for Brent in 2026. My view is that this doesn't fully account for the real magnitude of the supply shock yet.
A full recovery of Hormuz flows to pre-crisis levels by Q4 2026 is achievable but not guaranteed. Logistical bottlenecks — damaged infrastructure, insurance constraints, vessel repositioning — persist well beyond any ceasefire. The 2022 Ukraine experience is instructive: commodity flows take longer to normalise than political headlines suggest.
The WTI-Brent spread blowing out to over $16 in March reflects a real structural shift: US crude is now the marginal barrel, and the market knows it. That spread has further to run if Asian demand pull intensifies — and nothing today suggests it won't.
The pattern that repeats
Every major oil price shock of the last fifty years has followed the same script: analysts underweight the geopolitical risk until it materialises, then overcorrect once it does.
Mid-2020. Mid-2022. April 2026. The pattern is identical — low buffers, a geopolitical trigger, a market caught off guard.
The difference this time is the interconnection. This isn't just an oil shock — in absolute terms, this is the largest supply disruption the oil market has ever seen. In proportional terms, it rivals the shocks of 1973 and 1979. Refinery run cuts across Asia's top four economies are flowing through to product markets globally. European jet fuel at $200/barrel is not an oil story — it is an aviation story, a trade story, and eventually a consumer price story.
Energy markets don't move in isolation. When Hormuz closes, flight routes disappear in Frankfurt.