Hormuz Oil Shock Spreads West as Strait Remains Closed

Summary

• Eric Nuttall describes the Strait of Hormuz closure as the worst energy crisis of our lifetimes, with the West yet to feel the full global impact.
• Forecasts a loss of ~900 million barrels in Middle Eastern production this year, comparable to the ~870-880 million barrel demand shock during COVID.
• Market complacency persists despite depleting safety buffers: unsanctioned Russian and Iranian barrels, and modest strategic petroleum reserve releases.
• Physical shortages of oil barrels are imminent, shifting focus from price to availability and bridging the paper and physical markets.
• If the strait remains closed, oil prices may need to reach ~$177 per barrel to induce demand destruction at 5.5% of global GDP spent on oil.
• A permanent political risk premium of $10-$20 per barrel is expected post-crisis due to Iran weaponizing energy and increased geopolitical risks.
• Global oil inventories are approaching multi-year lows, reversing pre-crisis expectations of a historic glut by 2026.
• OPEC spare capacity, largely behind the strait, is now vulnerable to disruption from low-cost threats like $30,000 drones.
• Production recovery faces delays: Kuwait requires 3-4 months to ramp up, and Iraq risks permanent reservoir damage to over 1 million barrels per day.
• The "new normal" implies sustained higher oil prices; long-dated reserves in politically secure regions (e.g., Canada) have become significantly more valuable.