The ongoing conflict between the US, Israel and Iran has triggered an unprecedented crisis in global energy markets, with 100 million barrels of oil disappearing from weekly supplies for every week the Strait of Hormuz remains closed, the chief executive of Saudi Arabia’s state-owned oil giant Saudi Aramco revealed Monday.
Addressing analysts during an earnings call, Saudi Aramco CEO Amin Nasser described the supply disruption that emerged in the first quarter of the year as the most severe energy shock the global economy has ever encountered. With shipments through the strategic chokepoint blocked, Nasser explained that global markets have been forced to rely on demand rationing to manage the limited available supply.
“Demand rationing will remain in place for as long as supply disruptions through the Strait of Hormuz continue,” Nasser stated. “If regular trade and shipping through the waterway resume, we expect to see a very strong rebound in global oil demand growth.”
The burden of this rationing is not being shared equally across the globe, energy analysts note. Major Asian economies, which rely almost entirely on Gulf oil exports to meet their energy needs, have already implemented formal consumption restrictions. By contrast, while Western nations led by the United States have seen energy prices rise sharply, they have not introduced similar demand-cutting measures.
Oil markets swung sharply upward on Monday, with prices jumping more than 3% after former US President Donald Trump warned that a fragile ceasefire with Iran was “on life support”, as traders priced in a high probability of a resumption of open conflict that would extend the Hormuz blockage.
Nasser joined a growing chorus of energy industry leaders and analysts in pointing out a growing disconnect between oil prices quoted in futures markets and the actual cost of physical crude in the real economy. As of May 11, Brent crude futures for July delivery were trading around $105 per barrel, but end buyers are paying far higher rates for immediate delivery. Last month, HSBC CEO Georges Elhedery reported that spot oil prices in Sri Lanka had surged as high as $286 per barrel, while other industry analysts peg average spot prices for Asian buyers at roughly $150 per barrel.
To cushion the supply shortfall, Nasser said markets have drawn heavily on stored inventories both on land and in floating storage at sea — the only available buffer to offset the blockage. However, he warned that these global stockpiles have already been “materially depleted”, leaving little room for further draws.
Early in the conflict, the International Energy Agency coordinated a coordinated release of 400 million barrels of strategic reserves from its member nations, while China — the world’s second-largest oil consumer after the US — quietly cut its crude imports by 25% from pre-war levels. These two moves helped prevent an even more dramatic price spike in the short term, but Nasser warned against overconfidence in the current market stability, arguing that aggregate global inventory figures do not accurately reflect the extreme tightness in the physical spot market.
Market watchers, including major oil traders, independent analysts and leading US banks, have issued a stark warning that the global energy market will reach a critical tipping point in June if the Strait of Hormuz remains closed. JPMorgan’s latest analysis last week projected that if the chokepoint does not reopen by mid-to-late summer, global operational oil inventories will hit a minimum functional floor, triggering even more severe demand rationing that will fall disproportionately on countries outside the United States.
Against this backdrop of global market chaos, Saudi Aramco delivered stronger-than-expected first-quarter financial results, reporting a 26% jump in adjusted net income that beat consensus analyst forecasts. While the kingdom is only exporting 60 to 70 percent of its pre-war crude volume, far higher per-barrel prices have offset the volume drop and lifted profitability.
Unlike neighboring Gulf producers including Kuwait, Bahrain and Iraq — all of which are almost completely dependent on the Strait of Hormuz for their oil exports — Saudi Arabia has a workaround: its 5 million barrels per day East-West Pipeline, which moves crude from Gulf fields to the Red Sea port of Yanbu for export. Nasser described the pipeline as a “critical lifeline” for the kingdom, confirming it is currently operating at full capacity, and that the company is working to expand its throughput in the coming months. Saudi Arabia also ships 900,000 barrels per day of refined petroleum products out via Red Sea ports.