The world economy is “on borrowed time” as massive oil crisis looms.
May 20 (King World News) – Gerald Celente: PUBLISHER’S NOTE: … since the Iran War was … launched … on 28 February, the war has inflicted severe socioeconomic and geopolitical damage across the globe. Since then, Iran has locked down the Strait of Hormuz through which some 20 percent of global oil and liquefied natural gas supply is shipped through.
The disruption to shipping has caused the biggest oil supply crisis in history, pushing up oil prices from around $60 a barrel at the start of the year, to $110 as we go to press.
And as we have detailed, since the war began, President Trump said he would force Iran to make a deal and open the Strait and if they didn’t, he would bomb them into ruin. Repeating one lie after another, on 28 April, Trump declared that “Iran has just informed us that they are in a ‘State of Collapse. They want us to ‘Open the Hormuz Strait,’ as soon as possible, as they try to figure out their leadership situation (which I believe they will be able to do!).”
On 6 May Trump again lied saying the end of the Iran War was “very likely in the coming days.” When he lied about that, oil prices fell sharply and stock prices spiked. And again, as he been saying for weeks, if Iran did not make a deal, he again said that they will be bombed “at a much higher rate.” So, by the facts; no peace deal, no opening the Strait and another day of Trump’s statements that are, by the facts, just empty words.
Should the Iran War escalate and/or even continue for months, there will be real fears of a sudden disappearance of gas, diesel, and heating oil.
At the first sign of a shortage, people will begin filling their tanks, hoarding gas in cans, and engage in other kinds of panic buying. Consumers will conserve their cash and cut spending, the job market will weaken and push the world into Dragflation; declining economic growth and rising inflation.
Here are the latest effects of the Iran War on oil and gas.
WORLD ECONOMY “ON BORROWED TIME” AS MASSIVE OIL CRISIS LOOMS
Countries around the world are accelerating emergency measures to prepare for an oil shortage that appears quickly and drives prices out of reach. Seventy-six countries are now under some kind of emergency energy response, the International Energy Agency (IEA) said last week.
Such a future is growing more likely as the Strait of Hormuz remains shut to oil traffic, analysts and traders warn.
Australia’s government has allotted $10 billion to shore up its fuel and fertilizer stocks. India has told people not to buy gold or travel outside the country to maintain the country’s foreign currency reserve. France has vowed to “change the scope and scale” of supports to minimize damage from the energy crisis.
At Aberdeen Asset Management, portfolio managers are confronting a scenario in which oil rockets to $180 a barrel, throwing dozens of Asian and European countries into deep recession.
“We are taking that outcome very seriously” although it is not yet the company’s base case, chief economist Paul Diggle told the Financial Times, but, he said, “we are living on borrowed time.”
“An escalation scenario where oil prices surge through $150 a barrel would mean physical shortages, supply chain disruption, and recessionary outcomes,” Morgan Stanley analysts confirmed in a note to clients last week.
The world’s oil reserves are falling at a record clip just as the summer travel and air conditioning season begins in northern latitudes, as we report in “Oil Reserves Dwindling at a Record Pace” in this issue.
The next phase of the crisis will be marked by fuel rationing, factory shutdowns, and plunging global trade and economic growth, economists warn.
If the war “does not end in the coming weeks and we don’t have the opening of the Hormuz strait, a world recession could be on the table,” Apostolos Tzitzikostas, the European Union’s transport commissioner, told a conference earlier this month.
Since the war began on 28 February, the world has been consuming six million barrels of oil a day more than is being produced, the IEA has calculated. By some estimates, the figure is as high as nine million. In any case, the world is “living beyond its energy means,” the FT noted.
More than two million barrels a day are entering the market from various reserves, a source that, at the present rate, will be depleted before August, the FT reported. The IEA estimates that the world’s total reserves are down by more than 380 million barrels in total.
While developed countries are seeing higher fuel prices, emerging nations already are experiencing shortages of diesel and gasoline, according to the FT…
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IRAN WAR TURNS OIL GLUT INTO A DEFICIT, IEA SAYS
Widespread forecasts for an oil glut this year have now been flipped and instead the world’s oil supply will likely fall short of demand, the International Energy Agency (IEA) said last week.
The Iran War has led to extensive damage to Gulf nations’ oil production infrastructure that will take months, and in some cases years, to repair after the hot war ends. Iran is now exerting control over the Strait of Hormuz, through which 20 percent of the world’s oil passes, and is likely to continue that control to some degree as political leverage.
The result is what the IEA has called “the greatest oil supply crisis in history,” depriving the world oil market of more than a billion barrels so far, with 14 million barrels a day now out of production.
Businesses and governments pulled 246 million barrels out of their reserves in March and April, Reuters reported. In March, the IEA and its 32 member nations authorized a 400-million-barrel withdrawal from national strategic oil reserves, of which an estimated 164 million have been released so far.
In December, the IEA was forecasting an oil supply glut of more than four million barrels a day. Now it sees supply falling as much as 3.9 million barrels a day below demand this year overall and a whopping six-million-barrel daily deficit this quarter.
At the same time, demand will go down by about 400,000 barrels a day because of war-related curtailments in manufacturing and consumption, with gasoline now costing a third to almost double what it did before the war, the IEA projected.
The U.S. Energy Information Administration has cut its forecast for global demand growth this year to 200,000 barrels a day, down from the 1.2 million it foresaw early this year.
“Our latest supply and demand estimates imply that the market will remain severely undersupplied through the end of third quarter 2026, even assuming the conflict ends by early June,” the IEA said in a statement last week.
The agency sees a gradual return to normal traffic through the Hormuz Strait beginning in this year’s third quarter, with production growing to a “modest surplus” by the fourth quarter. This is the most likely scenario, the IEA believes.
However, full recovery will take longer as it will take at least three months to clear mines from the strait after the shooting stops. Rebuilding productive infrastructure will take far longer.
Brent oil futures contracts were pricing at $112.10 a barrel at 5 p.m. U.S. EDT on 18 May. Brent’s price has advanced around 60 percent since the war began. West Texas Intermediate oil, which benchmarks U.S. domestic oil prices, traded at $102.40.
If reserves continue to drain and the Strait of Hormuz remains locked down for several more weeks, crude oil’s price could shoot up as high as $150 a barrel, according to a report by TD Securities analysts. Oil at $125 for any length of time will trigger a U.S. recession, Moody’s Analytics has warned.
OIL RESERVES DWINDLING AT A RECORD PACE
A cushion of oil supplies held by businesses, oil companies, and national governments has kept the world with adequate levels of diesel and gasoline since 28 February when the U.S. and Israel attacked Iran. Spiraling prices also cut demand, leaving more oil available.
Now that cushion is rapidly disappearing. During March and April, it deflated by 246 million barrels, a record shrinkage, the International Energy Agency (IEA) said.
“Acute shortages” of the fuels could emerge quickly if the Strait of Hormuz is not reopened within a few weeks, industry experts told the Financial Times, adding that there is “little margin for error in the months ahead.”
“You can only decrease consumption so much,” Ellen Wald, senior fellow at the Atlantic Council’s Global Energy Center, said to the FT. “When inventories run out, they’re going to run out. At some point, the market is going to collide, and prices are going to shoot up.”
Reserves among a group of the wealthiest nations could fall to “operational stress levels” in early June and “operational floor level” in September if the strait remains closed much longer, JPMorgan analysts wrote in a report this month called “The Illusion of Plenty.”
The IEA is managing the gradual release of 400 million barrels of oil from the strategic reserves of its 32 member nations. However, that simply shifts the shortage to sometime in the future.
To replace all 400 million barrels as well as the other reserves now being drawn down, the global oil industry would need to produce an extra million barrels a day for three years, the IEA estimates.
The U.S. reserve is likely to dip below 100 million barrels by the end of this month, the lowest level since 2003, according to the Eurasia Group.
“Supply is unlikely to recover in the next few weeks or next few months, even if the strait opens tomorrow,” analyst Tamas Varga at oil broker PVM, warned in an FT interview.
The Bull Market In Stocks Is Gliding Along On A Winger And A Prayer
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Silver Buying Opportunity
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