Hormuz Crisis Reveals Energy System's Hidden Resilience

The Strait of Hormuz has been at the center of a longstanding dispute between Iran and the US, with both countries claiming to block shipping through the waterway. However, despite these claims, global oil markets have not collapsed.

The puzzle surrounding the Strait of Hormuz lies in the fact that if both claims were accurate, the consequences should be catastrophic, with Iranian oil trapped by the US and vice versa. Yet, almost six months into the conflict, Brent crude remains around $87, and there has been no universal collapse of markets.

The explanation for this paradox lies in a combination of factors. Firstly, attacks on vessels have resulted in deaths, injuries, and operational disruption, but not enough to cause widespread shortages. Secondly, global oil inventories have declined by approximately 410 million barrels since the war began, while production outside the Gulf has increased.

The International Energy Agency (IEA) reports that observed worldwide oil inventories have decreased by an average of 2.7 million barrels per day. Supply has fallen by about 4.3 million barrels per day, while high prices and economic weakness have reduced demand by approximately 1.6 million. The remaining deficit is around 2.7 million barrels daily.

The global energy system is being reconstructed during the war, with countries signing contracts with alternative suppliers and refineries learning to process different crude grades. This transformation raises a question: was the redistribution of energy power merely an unintended consequence?