The path of the energy user is beset on all sides by blockades and depleted reserves

(Originally published May 15 in “What in the World“) Warnings continue to mount of a catastrophic shortage of oil and fossil fuels, with skyrocketing prices.

Since the U.S.-Israeli war on Iran began in late February and Tehran shut the Strait of Hormuz, oil prices have climbed sharply, but not yet astronomically. That deceptive calm, however, belies the fact that inventories are being drained faster than they can be refilled.

The global oil network has proved remarkably resilient. When supplies through Hormuz were halted, a massive conservation effort began. Refiners slashed production and delayed maintenance shutdowns, governments (especially in hardest-hit Asia) imposed conservation measures, buyers deferred purchases and China sharply cut its own imports, helping reduce competition for scarce cargoes.

A similar scramble for alternative supply ensued. Buyers raided existing inventories, and countries like China—which had wisely stockpiled an estimated 1.3 billion barrels of crude—began tapping their strategic reserves. And U.S. producers flooded the world with exports, sending U.S. crude shipments to record highs as Europe and Asia scrambled to replace stranded Gulf barrels.

That bought the world time—and a false sense of security, even helping close the alarming premium between prices for crude for immediate delivery (so-called “physical” or “spot” crude) and prices for future delivery. But even after re-routing some of the crude that usually flows through Hormuz, analysts estimate the world is still short roughly 10% of the crude it normally uses. Tapping existing stockpiles and reducing demand have helped close that gap to some extent.

That is where things get ugly. Analysts from JPMorgan and Standard Chartered warn that the market’s shock absorbers are wearing out. Commercial stockpiles are falling at record rates, floating inventories are being exhausted, and nations can’t keep draining reserves indefinitely. And some of that oil sitting in commercial and strategic reserves can’t actually be withdrawn without damaging the infrastructure. Saudi Aramco CEO Amin Nasser warned early this week that analysts may be overestimating how much usable inventory is really left. Diesel and jet-fuel inventories — already much thinner than crude stockpiles — are being rapidly depleted ahead of peak summer travel season.

And high prices aren’t producing the kind of supply response you might expect. U.S. shale producers aren’t rushing to drill because they doubt prices will remain high enough for long enough to justify big investments. Rig counts have actually declined since the war began. OPEC+ production has promised to boost production, but that’s largely meaningless as long as the Strait remains closed.

Even if Trump somehow brokered a deal tomorrow to reopen Hormuz, it would still take weeks or months to clear mines, restore shipping confidence, reposition tankers and rebuild supply chains. Not to mention repair damaged infrastructure. Qatar has already said it would take years to restore capacity at its largest liquefied natural gas facility.

But summer demand is coming fast. The looming collision between shrinking inventories and rising seasonal demand, analysts say, is likely to result in an imminent surge in prices. The premium for physical crude is likely to come roaring back once refiners resume normal runs and buyers can no longer hold out, analysts say. Some diesel cargoes are already reportedly trading at high premiums as refined fuel supplies run out faster than crude stocks.

The ramifications go well beyond gasoline prices. Europe and Asia are also confronting soaring natural gas prices because Gulf LNG exports remain trapped. Fertilizer supplies, petrochemicals and even bitumen used for asphalt are tightening. Airlines are trimming schedules and readying fare increases as jet fuel becomes scarcer. China’s plastic producers have resorted to importing U.S. ethane, a byproduct of gas production, to replace naphtha stuck at Gulf refineries. Brent crude futures rose more than 1% early Friday after Trump suggested in an interview with Fox News that China was interested in buying U.S. oil and that he may resume bombing Iran.

The market hasn’t avoided a crisis. It has merely delayed the reckoning.