Commentary: There is no return to normal on oil any time soon

Even if the Iran war ends quickly, governments will need to prioritise security of supply, says this writer for the Financial Times.

LONDON: After the wild swings in oil markets since the start of the Iran war, US President Donald Trump’s suggestion that the conflict will end soon has reignited hopes of more normal conditions in the not-too-distant future.

That seems far-fetched. We are in the midst of one of the biggest supply disruptions in the history of the energy market - an event the industry has feared for 40 years. And yet, now that it is here, no one seems prepared.

Even after accounting for diversions by Saudi Arabia and the United Arab Emirates, the flow of oil through the Strait of Hormuz has been reduced by at least 10 million barrels a day, according to our estimates. That’s nearly 2.5 times more than the Russian crude exports that were assessed to be at risk during the initial stages of the Ukraine war before Russian supply was directed to China and India instead of Europe. 

The flow of oil products and liquefied petroleum gas through the Strait of Hormuz has also been reduced by 5 million barrels per day and liquefied natural gas stuck at nearly the equivalent of nearly 85 million tonnes per annum, almost 20 per cent of global supply.

Oil price volatility has skyrocketed. On Monday (Mar 9), the Brent crude benchmark swung around in a US$35 range, rising to nearly US$120 per barrel on fears the Strait would remain closed for a while and then falling on assumptions that the war would end imminently based on Trump’s comments.