Oil Supply Crunch Deepens

The last oil tankers to pass through the Strait of Hormuz before the outbreak of war are now approaching their destinations, marking a critical turning point for global energy markets. Within days, refineries will process the final wave of pre-conflict crude, after which analysts warn the full force of the disruption will begin to show, first in Asia and then across Europe and the United States.

Those final shipments, many bound for Malaysia and Australia, are expected to arrive by April 20. Their delivery effectively closes the chapter on pre-war supply flows from the Gulf, a region that normally accounts for a substantial share of global crude exports. What follows is a tightening market where replacement barrels are harder to secure and significantly more expensive.

The immediate strain has been most visible in Asia, where refiners depend heavily on Middle Eastern crude. The region typically sources around 80 per cent of its oil from the Gulf, leaving it acutely exposed to any disruption through Hormuz. As flows slowed in early April, operators began cutting runs, drawing down reserves, and scrambling to secure alternative supplies.

That scramble has reshaped global trade patterns. Asian buyers have moved aggressively into the Atlantic basin, purchasing record volumes of crude from the United States, Canada, the North Sea, West Africa, and South America. Cargoes that would ordinarily supply Europe or the US are being diverted east, tightening availability in western markets.

The effect is delayed but predictable. Analysts expect Europe and the US to begin feeling the impact within weeks, once the redirection of flows fully works through the system. As Nic Dyer of Energy Aspects put it, the shift will become evident when Asian purchases pull remaining Atlantic supplies away from their usual destinations, forcing western refiners to respond.

That response is likely to involve reduced processing rates. Refiners on both sides of the Atlantic may have little choice but to cut runs as crude becomes harder to source. The result would be a shared shortage, spreading the impact of the disruption across major consuming regions rather than concentrating it in Asia alone.

Signs of stress are already emerging in pricing. The market for immediate delivery has surged well beyond futures contracts, a classic indication of tight physical supply. North Sea Forties crude recently climbed to nearly $149 a barrel, surpassing levels seen before the 2008 financial crisis. By contrast, Brent futures remain closer to $100, highlighting the premium refiners are willing to pay for prompt cargoes.

This widening gap reflects a market increasingly driven by urgency rather than expectation. Spot prices, which track the cost of oil available for immediate use, are rising sharply as buyers compete for dwindling supplies. Futures markets, by comparison, still reflect some uncertainty about how long the disruption will last and whether alternative flows can stabilise the system.

Analysts at JPMorgan say the growing premium is a clear signal that the market is under strain. European and Asian refiners are now competing directly for the same limited pool of crude, pushing up prices and accelerating the squeeze. The longer the disruption persists, the more pronounced that competition is likely to become.

At the centre of the crisis is the Strait of Hormuz itself. Even before the conflict, roughly a fifth of global oil and liquefied natural gas supplies passed through the narrow waterway. Its effective closure has removed a critical artery from the global energy system, trapping physical barrels in the Gulf and raising the risks associated with any attempt to load new cargoes.

The situation has been compounded by a US naval embargo, introduced as part of Washington’s response to the conflict. The blockade has further restricted traffic through the strait, with President Donald Trump warning that vessels attempting to breach it could be seized. The move is intended to exert pressure on Iran, particularly by limiting its ability to export oil to China, but it has also intensified the disruption to global supply chains.

For shipping companies and traders, the risks have become difficult to justify. Insurance costs have surged, and the prospect of military escalation has deterred many operators from entering the Gulf. As Kurt Barrow of S&P Global Energy notes, the combination of physical constraints and heightened risk has left large volumes effectively stranded, with no clear timeline for a return to normal conditions.

The longer the strait remains closed, the greater the likelihood of more severe downstream effects. Patrick Pouyanné, chief executive of TotalEnergies, has warned that prolonged disruption could lead to shortages of refined products such as jet fuel and diesel. If the situation extends beyond three months, he suggests rationing may become unavoidable, particularly in sectors heavily reliant on continuous fuel supply.

Governments are already preparing for that possibility. The International Energy Agency has indicated it stands ready to release additional strategic reserves if necessary. Member countries have already committed a record 400 million barrels to stabilise markets, but further intervention may be required if prices continue to rise and physical shortages begin to emerge.

The impact is not confined to advanced economies. Countries with high dependence on Middle Eastern imports are facing immediate and severe consequences. The Philippines, which sources more than 95 per cent of its oil from the region, has declared a national energy emergency after domestic fuel prices doubled. Indonesia and Vietnam have taken the unusual step of encouraging remote working to reduce fuel consumption.

Australia, meanwhile, is drawing on its reserves and implementing measures to cushion the shock, including tax reductions and a broader fuel security plan. Even with such interventions, the loss of regular Gulf supplies presents a significant challenge, particularly if the disruption proves prolonged.

Beyond energy markets, the wider economic implications are beginning to come into focus. A report from the United Nations Development Programme warns that tens of millions of people could be pushed into poverty as a result of rising energy costs, higher food prices, and the broader slowdown linked to the conflict. The combination of reduced supply and elevated prices risks feeding through into inflation, undermining growth across both developed and emerging economies.

For now, much depends on how long the Strait of Hormuz remains effectively closed and whether diplomatic efforts can ease tensions. A swift reopening would allow flows to resume and ease pressure on global markets. But if the current situation persists, the final pre-war cargoes now arriving may come to mark the beginning of a more sustained and disruptive phase for the global energy system.

The coming weeks will reveal whether the market can adapt through rerouted supplies and strategic reserves, or whether deeper shortages take hold. What is clear is that the loss of Hormuz flows has exposed the fragility of a system still heavily reliant on a single, narrow chokepoint.