Global Oil Markets Brink of Collapse Amid Multiple Chokepoints

Fighting in oil-producing regions has reached a critical point, threatening to choke off global energy markets. The U.S. and Iran have paused their attacks on each other in the Persian Gulf while engaging in diplomacy, but negotiations are unlikely to resolve tensions surrounding the Strait of Hormuz.

The Bab el-Mandeb Strait is also under threat from Iran-backed Houthi rebels, who are targeting ships in the Red Sea. While larger tankers can use the Suez Canal as an alternative route, there's a risk that Iran could strike this vital waterway as well.

Ukraine has been attacking Russia's oil infrastructure and tankers carrying its oil and refined products in the Black Sea, further exacerbating supply shortages. Russia is one of the world's top diesel producers, but damage to its refineries has forced Moscow to ban exports to preserve domestic supplies.

Rystad Energy's Susan Bell warns that the crisis for refined fuels is more severe than for crude oil, with inventories of gasoline, diesel, and jet fuel dwindling rapidly. The 'crack spreads' between oil prices and fuel prices have exploded, reaching $40-$50 per barrel in the U.S.

As global energy reserves are depleted and emergency measures are exhausted, oil prices could surge to near-record highs if both the Bab el-Mandeb and Strait of Hormuz are nearly shut down. Analysts predict that oil prices could rise back to $124 per barrel by August if the situation worsens.