Financial investors have decided that the Hormuz problems are now over:
- But product prices haven’t fallen back to pre-invasion levels, as the Deutsche Borse chart shows
- Supply shortages are growing for all the main transport fuels – gasoline, jet and bunker fuel
Oil supplies have only been maintained by releasing emergency stocks, as we’ve discussed before.
But financial markets will soon have to wake up to reality:
- The Iran “peace deal” isn’t a peace deal – Iran has no intention of giving up its control of the Strait of Hormuz
- Ukraine is deadly serious about winning the war with Russia – And its key weapon is drone attacks to close down Russia’s refineries
TRANSITS HAVE FALLEN AGAIN THROUGH THE STRAIT
The issue in the Strait of Hormuz is well summarised by The Atlantic:
“If Donald Trump ever had any control over the war he started with Iran, he’s lost it.
“The Iranians are now setting the terms of this conflict and are routinely humiliating the American president. The “cease-fire” Trump declared last month—a move probably meant to both soothe international markets and avert legislative action from the United States Congress—never really existed, because neither side ever ceased firing.”
Everybody in the oil markets has always known that attacking Iran would likely lead to the Strait’s closure:
- Hundreds of military wargame exercises demonstrated that an attack would fail
- The only difference with today’s closure is that drones have been Iran’s key weapon, not mines
And Iran knows that Trump’s options are very limited:
- He cannot launch a full-scale military attack on a well-armed country with a population of 93 million
- It would need millions of ‘boots on the ground’, and a major supply chain operation
Plus, of course, the clock is ticking ahead of the mid-term elections.
UKRAINIAN DRONES ARE HITTING EVERY MAJOR RUSSIAN REFINERY
Russia is the world’s 3rd largest oil producer, with 2025 output of 10.7mbd.
Its refineries used to process 5.7mbd of products such as gasoline, diesel, jet and bunker fuel:
- Today, its refining output is down by 25% according to former Yukos head, Mikhail Khodorkovsky
- Ukraine has hit every major Russian refinery, as President Zelensky told last week’s NATO Summit
- Most parts of the country are suffering major fuel shortages as the Reuters map shows
Russia has now had to ban diesel exports to supply its own domestic demand. And as the New York Times reports:
“Shortages appear to be particularly dire in eastern Siberia and the Far East.
“Lines in the Irkutsk region have been so long that the authorities promised to install portable toilets along highways to serve the motorists”.
RESTARTS IN THE STRAIT ARE NOT GOING WELL
There are at least 50 plants in the Gulf waiting to restart. But this isn’t just a question of pressing a button:
- The ships currently in the Gulf have to leave and unload their cargo at a customer
- New ships have to enter the Gulf to empty the plants’ shore tanks, which are all full
- Only then can the manufacturing teams make a decision as to whether it is safe to restart
Restarting is a very dangerous operation. Any leak can easily lead to an explosion and multiple deaths, as we saw tragically 2 weeks ago at Ras Laffan.
And some plants have been damaged in the bombing. They will take months, sometimes years, to be repaired:
- The standard waiting time for an industrial gas compressor is 12-18 months
- The current lead time for heavy industrial equipment is 2 – 4 years
And in the meantime, reserve stocks are being drawn down to tank bottoms.
QATAR HAS PAUSED LNG OUTPUT AT RAS LAFFAN
Last week also saw QatarEnergy pause production at the world’s largest LNG unit, as Bloomberg report:
“Qatar is pausing efforts to rapidly revive production at the world’s largest liquefied natural gas (LNG) facility after an attack on one of its tankers in the Strait of Hormuz raised fears that transit through the crucial waterway is still too risky”.
Asian spot prices for LNG are already 80% higher than pre-war levels. European prices are back at €50+MWh.
Helium, essential for semi-conductor manufacture, is also going short as Ras Laffan supplies 30% of global supply. China has banned exports to support its own industry.
We are therefore nearing crunch time for vital energy supplies of transport fuels and natural gas.
Europe’s gas storage for the winter was just 28% full when refilling for the winter began in April.
And around the world, energy supplies are getting tighter by the day.