Oil Supplies May Dwindle If Hormuz Shipping Doesn't Recover

Federal Reserve Bank of Dallas President Lorie Logan has warned that global oil supplies may start to dwindle if shipping through the Strait of Hormuz doesn't return to normal soon. The war in Iran has trapped about 10% of global oil supplies, and reserve drawdowns have helped fill the gap so far.

However, inventories are finite, and Logan said that with supplies highly constrained, world oil and natural gas consumption could need to fall more meaningfully if shipping through the strait doesn't soon return to prewar levels. This could lead to economic consequences, depending on how much end users can switch to other energy sources or use energy more efficiently.

The Dallas Fed chief also spoke about the importance of improving the resilience of the US Treasury market in times of crisis. Logan suggested that the Fed should centrally clear its open market operations and find better ways to distinguish between asset purchases made to support market functioning versus those intended to stimulate the economy.