Hormuz standoff drains oil cushion. Will consumers be hit again?

Dubai: The world survived the first oil shock of the US-Iran war. Nearly six months later, the buffer that helped protect consumers from an even bigger hit is getting thinner.

Global oil stockpiles are rapidly diminishing as traffic through the Strait of Hormuz remains effectively stalled, raising a potentially more worrying question: How long can the disruption continue before consumers face another round of pain?

Iran on Thursday declared that the strait remained under its control, directly challenging US President Donald Trump’s assertion that Washington “owns” the strategic waterway.

“Today, you see that the Strait of Hormuz is under the management and control of the Islamic republic, and our country continues on its path in complete security,” Hossein Taeb, head of the Basij forces affiliated with Iran’s Revolutionary Guards, said, according to AFP.

The competing claims come as Hormuz, which normally carries around 20 per cent of the world’s oil, remains a shadow of its pre-war self. Only 14 vessels crossed the strait on Tuesday, compared with roughly 120 ships a day before the war.

For months, the global economy has adapted. Oil has been drawn from inventories, producers elsewhere have increased output, businesses have adjusted supply chains and consumers have reduced demand.

But those buffers are not unlimited.

The International Energy Agency said this week that elevated fuel prices and the continuing Hormuz closure are already weighing on consumption, with global oil demand now forecast to fall by 1.6 million barrels a day this year.

“The ongoing closure of the Strait of Hormuz and elevated fuel prices continue to weigh on oil consumption,” the IEA said.

Higher crude prices feed through to transport, industry and petrochemicals, making energy more expensive across importing economies and encouraging businesses and consumers to curb fuel use.

The danger is what happens if the disruption outlasts the world’s ability to keep drawing on inventories and finding alternative supplies.

Trump had insisted a day earlier that Washington was firmly in control.

“They don’t have control. We have total control. We own it, and at some point, maybe they’ll do something, and then they get blown away,” Trump told reporters on Wednesday. “Right now, we’re in a very good position.”

Yet the collapse in commercial traffic suggests neither side’s claim tells the full story.

54 reports of damage to vessels

“Few merchant shipping companies and their ships are confident that the US can ensure their safe transit of the strait,” said Carl Schuster, former director of the US Pacific Command’s Joint Intelligence Center.

Those fears are hardly unfounded. At least four vessels were attacked by drones and missiles in the strait last week alone.

Since the war began, the United Kingdom Maritime Trade Operations (UKMTO) has recorded 54 reports of damage to vessels in the strait, the Arabian Gulf and Gulf of Oman, with three vessels confirmed as total losses and 13 near misses.

Iran does not even need to attack every vessel to keep shipping companies nervous. It can harass ships with drones and conduct “targeted surveillance of merchant shipping”, UKMTO said in a recent advisory.

The danger is also driving up insurance costs, adding to the expense of moving energy and goods.

Higher energy costs can also travel far beyond petrol stations. Oil affects aviation and road transport, manufacturing, petrochemicals and the movement of goods, meaning a prolonged increase in costs can eventually work its way through wider economies.

That is why the erosion of global stockpiles matters even at a time when oil prices are not continuously surging.

“Until you can ensure safe use of the strait, you do not have total control,” Schuster said.

Neither side has full control

The unusual reality of Hormuz is that Washington and Tehran possess very different forms of leverage.

The US naval blockade of Iran remains in force, barring ships from travelling to or from Iranian ports inside or outside the strait. That has severely restricted Iranian maritime trade and squeezed Tehran’s cashflow.

Iran, however, sits beside the waterway and retains the ability to make commercial shipping dangerous

CNN military analyst and retired Air Force Col. Cedric Leighton said neither side therefore exercises complete control.

“What you’re really dealing with is a standoff here,” he said.

“Because of the proximity of US forces, because of the blockade, and because of Iran’s ability and willingness to at least threaten the use of mines and the use of small boats to harass vessels … neither side is really able to exercise full control over the strait.”

Iran, meanwhile, appears prepared to play a long game. Mohammad Reza Naqdi, a senior adviser to the Revolutionary Guards, said Tehran could “prolong” the war until Trump is out of office.

That raises the stakes for Washington as the November midterm elections approach and cost-of-living pressures become increasingly important.

For consumers, however, the equation is simpler. Inventories, alternative supplies and reduced consumption helped the world absorb the first shock.

But every barrel drawn from that cushion leaves less protection against the next one — and as long as ships remain reluctant to return to Hormuz in normal numbers, that cushion will remain under pressure.