Shell CEO Warns Oil Market Is Down Nearly 1 Billion Barrels as Iran War Drags On
The global oil market is sitting on a deficit of close to one billion barrels, CNBC reported Thursday, and the gap widens with every passing day the Middle East conflict persists.
Shell CEO Wael Sawan made the stark assessment during his company’s first-quarter earnings call. He described the shortfall as a combination of barrels that cannot move and barrels that were never produced. The Iran war oil shortage, he stressed, will not resolve quickly once fighting stops.
A Historic Supply Disruption Takes Shape
The scale of the disruption is without modern precedent. The International Energy Agency has called it the largest supply shock in history. At its center sits the Strait of Hormuz, a narrow chokepoint that once carried roughly one-fifth of the world’s daily oil traffic before the U.S. and Israel launched strikes on Feb. 28.
Iran’s effective blockade of the strait has removed about 12% of global crude from accessible markets, according to Sawan. With the world consuming around 100 million barrels per day, the math on cumulative losses is sobering.
Oilfield services giant Halliburton reached a similar estimate. CEO Jeffrey Miller told investors on the company’s April 21 earnings call that production losses attributable to the conflict are also tracking toward the one-billion-barrel mark. Miller said any restoration of output and inventory levels would be neither fast nor straightforward.
How the Crisis Built Up Over Months
Industry executives have sketched out the timeline of how supply stress developed. Tankers that left the Persian Gulf before hostilities broke out continued delivering cargoes through March and April, providing a temporary cushion. That cushion has now been fully absorbed, ConocoPhillips CFO Andrew O’Brien told investors last week.
O’Brien warned that import-dependent nations could begin facing critical fuel shortages as early as June or July. Demand destruction has remained relatively contained so far. Sawan noted jet fuel consumption in the airline sector has dipped around 5%, a modest number given the size of the supply crunch.
Prices Drop on Deal Hopes, But the Road Back Is Long
Oil prices have slid more than 10% since Tuesday on speculation that Washington and Tehran may be moving toward a negotiated settlement. Yet even an agreement would not immediately restore flows. Chevron CEO Mike Wirth told CNBC Monday that the strait would need to be swept methodically for mines before commercial traffic resumes. Hundreds of vessels stranded inside the Persian Gulf also need to be repositioned globally. Exxon Mobil CEO Darren Woods estimated that process alone could take up to two months after any ceasefire takes hold.
Sawan’s message was direct: the world dug itself into a deep hole, and climbing out will take considerable time.
Read Next: What the Strait of Hormuz Closure Means for Energy Markets