Hormuz 'Largest Energy Shock on Record'

This was full of some pretty interesting factoids, and I thought I'd share. It won't make anything cheaper tomorrow or ease the pain of what you're paying today; that's true.

But I do love added perspective when stuck with a miserable situation, and this one is affecting all of us.

🚨 Hormuz is the largest energy supply shock on record, says McKinsey At its peak, the Strait of Hormuz disruption took 14% of global oil and gas supply off the market. That is more than double the 1970s oil shocks in relative terms, and more than six times the peak impact of Russia’s 2022 invasion of Ukraine. Before the crisis, 91% of the energy flowing through Hormuz was oil and 9% was gas. The system has held up better than that scale suggests. 3 buffers absorbed the shock, and none of them existed at this scale in 1973: Strategic stocks: the IEA coordinated a release in March, with the US alone pledging 172M barrels. Bypass pipelines: Saudi Arabia’s East-West line to the Red Sea and the UAE’s line to Fujairah. Flexible trade: cargoes rerouted and refiners switched crude grades and suppliers. ⚠️ Those buffers are being used up. The US SPR is at its lowest since 1982. China drew a record 47–57M barrels from storage in September. The East-West pipeline was hit in September, and October brought the most ship attacks of the war. A buffer protects you only once. The question for 2027 is whether stocks get rebuilt before the next disruption. Source: McKinsey Global Institute

— Jack Prandelli (@jackprandelli) October 14, 2026

That is more than double the 1970s oil shocks in relative terms, and more than six times the peak impact of Russia’s 2022 invasion of Ukraine.

Before the crisis, 91% of the energy flowing through Hormuz was oil and 9% was gas.

The system has held up better than that scale suggests. 

3 buffers absorbed the shock, and none of them existed at this scale in 1973:

Strategic stocks: the IEA coordinated a release in March, with the US alone pledging 172M barrels.

Bypass pipelines: Saudi Arabia’s East-West line to the Red Sea and the UAE’s line to Fujairah.

Flexible trade: cargoes rerouted and refiners switched crude grades and suppliers.

We haven't run out of oil and gas, but stocks are extremely low, and the prices reflect that right now, especially diesel. Much of that pressure, at least here in the States, is due not to a lack of oil to refine into diesel, but a lack of diesel refining capacity. You can kiss a cultist for that.

...Sure, Iran's not helping anything, but we couldn't refine it if we had it.

...Diesel prices underpin the price of pretty much everything else. When they rise, other prices follow, notably food prices, to which people are particularly sensitive. This is of particular concern in Washington ahead of the midterm elections in November, hence the idea of an export ban. A ban could bring down prices at home, but it would push prices even higher elsewhere, aggravating an already quite grave fuel supply crisis. It is a crisis that no one could have foreseen, but also one that might have arguably been less grave had there been more refining capacity in the world.

The fact is that over the past decade or so, a lot of refineries have been shut down under pressure from the net-zero movement that has come to dominate energy policies, mainly in Europe, but also in the U.S. under Democratic administrations. Refining had become a losing game for many, so they either shut down or converted their capacity to biofuels.

“We’ve seen the oil majors effectively reduce their exposure to that sector because the returns on actual capital employed have been poor,” Wood Mackenzie senior VP for refining, chemicals, and oil markets Alan Gelder told the Wall Street Journal. “The classic phrase we used was: ‘How do you make a small fortune? Take a large fortune and build a refinery.’”

The oil flows out of the region have been holding up pretty well since my post at the end of September.

MIDDLE EAST OIL FLOWS: Despite a wave of Iranian attacks since the beginning of October, total Middle Eastern crude oil flows (ex-Iran) remain resilient. Flows are becoming, however, lumpier (days of multiple tanker crossings followed by days of very few tankers). Overall, Middle East (ex-Iran) crude flows, including Strait of Hormuz plus all the bypass routes, are holding at ~75% of pre-war levels, down from a ~95% *peak* in the last days of September. Crucially, despite the drop in recent days, the Oct 1-Oct 10 period average remains above Sep full month average (and well above full month August). Kuwait is struggling the most right now. UAE, Iraq and KSA (the last one using both Persian Gulf and Red Sea) are doing relatively well. All said, the risk is to the downside if the Iranian attacks continue (and if they become more successful). Iran has sunk at least one container ship in the SoH over the last 24 hours. The same goes for Red Sea flows under Houthi / Iraq militias potential attacks. For Iran itself, Hormuz remains closed. One key indicator to follow: despite the Iranian attacks against SoH traffic, the physical premium for Middle Eastern crude has come down significantly in recent days, touching today a near 2½-month low.

— Javier Blas (@JavierBlas) October 14, 2026

Overall, Middle East (ex-Iran) crude flows, including Strait of Hormuz plus all the bypass routes, are holding at ~75% of pre-war levels, down from a ~95% *peak* in the last days of September. Crucially, despite the drop in recent days, the Oct 1-Oct 10 period average remains above Sep full month average (and well above full month August). Kuwait is struggling the most right now. UAE, Iraq and KSA (the last one using both Persian Gulf and Red Sea) are doing relatively well.

All said, the risk is to the downside if the Iranian attacks continue (and if they become more successful). Iran has sunk at least one container ship in the SoH over the last 24 hours. The same goes for Red Sea flows under Houthi / Iraq militias potential attacks. For Iran itself, Hormuz remains closed.

One key indicator to follow: despite the Iranian attacks against SoH traffic, the physical premium for Middle Eastern crude has come down significantly in recent days, touching today a near 2½-month low.

Global production has nearly recovered to meet global demand...

Global oil production recovered above the 100-million-barrels-a-day threshold in September, after a surge from the Middle East (to hit ~102m b/d), per new @IEA estimates. Despite the recovery, supply remains slightly below global demand of ~103.5m b/d.

— Javier Blas (@JavierBlas) October 14, 2026

...which runs about 103 million bbls per day.

Yes, that's correct re: 4Q (probably instantaneous Oct is a bit below that). And yes, eye-watering production numbers from the UAE. Say whatever you think about ADNOC (and if I have my disagreements with them from time to time) but, oh man, they are delivering right now.

But, that being said, the Iranians are getting feisty again - they've sunk four ships recently, and traffic is beginning to slow. They have also started targeting Saudi Arabia's ARAMCO facilities.

...The IEA’s October Oil Market Report, published Wednesday, warned that constraints on diesel markets could continue well into 2027, with fresh attacks on Saudi Arabia threatening to derail a recovery on the supply side of the global oil market.

Fighting between Saudi Arabia and the Iran-backed Houthis continues to escalate, with the Saudi Ministry of Energy saying Wednesday that an administrative building belonging to oil giant Saudi Aramco had been attacked overnight. No injuries were reported at the site in Dhahran, a city on Saudi Arabia’s eastern coast.

This could just be one of their feints in order to affect the midterms, but either way, if it continues, it has a deleterious effect on everyone, while Iran has nothing to lose.

Iran doesn’t need to maintain a Persian Gulf blockade, it only needs to make the costs of doing so very expensive. It is succeeding because shipping costs are now 1/3 the cost of oil. Crews are being paid 6 months to a years pay to attempt to transit Hormuz.

— Howard Aulsbrook (@HowardAulsbrook) October 13, 2026

Our strategic petroleum reserves (SPR), along with everyone else's, are at multi-year lows thanks to using them to help cushion the shock as Hormuz shipping came slowly back and Arabian pipelines picked up the slack. The SPRs have to be refilled at some point.

This is a terrific graphic of how the world shifted for oil and gas deliveries in the face of the Hormuz situation. The Iranians never saw that adroitness coming, and it was a serious miscalculation on their part.

🛢️ The war redrew the world’s oil map in one quarter Q2 2026 vs Q2 2025 ⬇️ 📉 Routes that lost volume: Strait of Hormuz: 21.0 → 4.9 mb/d (−77%) Strait of Malacca: 23.8 → 16.6 mb/d (−30%) Danish Straits: 4.8 → 4.7 mb/d (−2%) 📈 Routes that gained Bab el-Mandeb: 4.5 → 8.1 mb/d (+80%) Panama Canal: 2.5 → 3.2 mb/d (+28%) Suez + SUMED: 5.1 → 5.8 mb/d (+14%) Turkish Straits: 3.7 → 4.1 mb/d (+11%) Cape of Good Hope: 9.3 → 9.4 mb/d (+1%) 2 things kept oil moving: 1️⃣🇸🇦 Saudi Arabia pushed crude west through its 7 mb/d East-West pipeline to the Red Sea, which is why Bab el-Mandeb jumped. 2️⃣Asia replaced Gulf barrels with crude from the Americas, which is why Panama is up and Malacca is down. 🛢️ Stockpiles covered the rest. The US Strategic Petroleum Reserve fell from 413M to 321M barrels in one quarter, and 🇯🇵 Japan’s from 263M to 187M. ⚠️ The Q2 map is already out of date... The Houthis banned Saudi-linked ships on 20 July, and Saudi crude through Bab el-Mandeb fell to near zero in August.

— Jack Prandelli (@jackprandelli) October 13, 2026

Bab el-Mandeb: 4.5 → 8.1 mb/d (+80%)

Panama Canal: 2.5 → 3.2 mb/d (+28%)

Suez + SUMED: 5.1 → 5.8 mb/d (+14%)

Turkish Strait: 3.7 → 4.1 mb/d (+11%)

Cape of Good Hope: 9.3 → 9.4 mb/d (+1%)

2 things kept oil moving: 

1️⃣🇸🇦 Saudi Arabia pushed crude west through its 7 mb/d East-West pipeline to the Red Sea, which is why Bab el-Mandeb jumped. 

2️⃣Asia replaced Gulf barrels with crude from the Americas, which is why Panama is up and Malacca is down.

🛢️ Stockpiles covered the rest. 

The US Strategic Petroleum Reserve fell from 413M to 321M barrels in one quarter, and 🇯🇵 Japan’s from 263M to 187M.

⚠️ The Q2 map is already out of date... The Houthis banned Saudi-linked ships on 20 July, and Saudi crude through Bab el-Mandeb fell to near zero in August.

The good news, additionally, was that the Panama Canal was able to keep ships going through without reducing transits as it received some much-needed rainfall.

Every little bit.

If the U.S. hadn't been in such good shape going into this, and with the Trump administration's concerted efforts to keep the oil flowing around the world, our economy on track with continued foreign investment and downsizing, etc., woof. 

Sure, Trump could have left it all alone.

And then I think we could well have been just months from making $4 gal gas irrelevant with a nuclear Iran.

It helps to look at the whole picture sometimes.

And know that this, too, shall pass. 

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