Hormuz Disruption Exposes Global Energy Markets' Fragile Cushions

The recent disruption in the Strait of Hormuz has left global energy markets reeling. The closure, which disrupted 14% of the world's combined oil and gas supply, was the largest in modern history.

Despite the severity of the crisis, the global economy proved surprisingly resilient, with crude prices eventually retreating from a peak above $120 per barrel. According to McKinsey & Company, this unexpected resilience can be attributed to a combination of factors, including demand destruction and flexibility.

However, the report warns that these economic cushions are rapidly deteriorating. The global economy has drawn down half a billion barrels from inventories, and the US Strategic Petroleum Reserve now sits below 300 million barrels, approaching its statutory floor.

In response to the crisis, governments and corporations are actively fortifying energy security. The report estimates that measures currently underway or under discussion could offset between 35% and 70% of pre-crisis oil flows through the Strait by 2030 in the event of a future shock.