The US war against Iran has caused the largest oil supply disruption in history, more than double the previous record set during the Middle East crisis of the 1950s, according to an analysis by consulting firm Rapidan Energy.
Around 20% of global oil supplies have been disrupted for nine days as tanker traffic through the Strait of Hormuz remains at a standstill. As a result, crude oil prices soared to more than $100 per barrel.
The biggest disruption before the current war was during the Suez crisis in 1956, when Britain, France and Israel invaded Egypt’s Sinai Peninsula, the energy consulting firm told clients in a note on Sunday. The crisis cut off about 10% of the world’s oil supply at the time.
Comparison of oil supply disruptions
Source: Rapidan Energy
Rapidan analysts told clients that the disruption caused by the strait closure was nearly three times as large as the shock caused by the 1973 Arab oil embargo. The Arab embargo disrupted about 7% of global supplies.
Analysts said the key difference between the supply shock from the Iran war and past crises is that the world does not have excess oil production capacity to deal with the problem. Analysts say Saudi Arabia and the United Arab Emirates, which hold the vast majority of swing production capacity, have been cut off from the global oil market by the closure of Hormuz.
Rapidan analysts said: “The conflict has not only taken away a historically high proportion of global supplies, but also disrupted the major holders of spare production capacity at the same time.” “The result is a market without any meaningful buffer. There are no swing producers in a position to intervene.”
This means the global oil market needs to be balanced by destroying demand through a spike in oil prices, analysts said. They said U.S. strategic oil reserves are “limited and insufficient” to fully offset the supply squeezed into the Persian Gulf by the Hormuz closure.
According to the Department of Energy, there are currently 415 million barrels in the Strategic Petroleum Reserve, about 58% of the total licensed capacity of 714 million barrels.
A White House official told CNBC on Friday that the Trump administration believes “the oil market remains well-supplied and will take additional action if necessary.”
Analysts at Rapidan said International Energy Agency member states would be under pressure to release their strategic stockpiles as this was “the only remaining supply response option”.
Group of Seven (G7) finance ministers met on Monday to discuss the coordinated release of oil from reserves. However, French Finance Minister Laurent Lescure said the group had not yet taken a decision to do so. “We are not there yet,” Lescure told the Financial Times.
