The warning bells are getting louder.
Not merely from traders or geopolitical commentators, but from multilateral agencies, trading houses, and global institutions whose job is to understand physical markets and economic risk.
Last week, the heads of the International Energy Agency, International Monetary Fund, World Bank and World Trade Organization issued an unusually stark joint warning following a high-level coordination meeting. Global oil inventories, they said, are being drawn down at a rapid pace in response to the supply shock triggered by the closure of the Strait of Hormuz. If shipping flows fail to normalise, continued depletion ahead of peak northern hemisphere summer demand would pose rising risks to fuel security, market conditions, and broader economic resilience, they said.
The IEA this week sharpened that message further. Toril Bosoni, head of its oil markets division, warned that commercial inventories could fall towards critical or historic lows if current draws continue. Even under a best-case diplomatic scenario, she cautioned, reopening Hormuz and restoring normal flows could take six to eight months. Emergency stock releases are merely a temporary stopgap and cannot resolve supply losses of this scale, Bosoni said, implying that any lasting adjustment would ultimately have to come from the demand side.
The private sector is sounding similar alarms.
Tom Baker, Vitol’s managing director for Bahrain, warned that the market may be underpricing the risks from the Iran war and Hormuz disruption. Crude supply may eventually recover, he argued, but refined products could remain structurally tight for the rest of the year. His most telling observation may have been that the real stress point arrives when buyers need physical barrels and “the physical molecules just aren’t there to buy.”
Goldman Sachs has shifted the spotlight to refined products, warning of a potential diesel squeeze in the US by August as refiners tilt yields towards jet fuel during the summer travel season. Even if crude balances stabilise, product markets may not.
Global inventories are approaching “unheard of” lows, ExxonMobil Senior Vice President Neil Chapman warned recently. Once inventories approach operational minimums, crude could spike towards $150-160/barrel, he said.
The common thread is difficult to ignore. This is no longer merely a story about lost supply. It is a story about shrinking buffers and a market running down its last line of defence.
Commercial as well as strategic reserves are being depleted at pace. Product balances are tightening. Yet futures markets continue to swing between alarm and complacency, still highly responsive to each round of “deal imminent” rhetoric emerging from Washington and Tehran.
Yet the louder the warnings grow, the more puzzling the muted policy response becomes.
Who exactly are these warnings directed towards?
Market participants, certainly. Refiners, importers, shipping companies, and industrial consumers need to hear them and adjust procurement strategies, supply chains, and contingency plans accordingly. For many, the menu of workable options is already narrowing, and the cost of waiting is rising.
Traders, too, should pay attention. Whether they will is another matter. The current crisis has curiously seen markets remain attached to narratives even though fundamentals are moving in another direction. At least one major trading house now openly argues that oil is underpriced relative to the physical risks confronting the market.
But perhaps the real audience is governments — especially those in net oil-importing countries.
And if so, why does the response still appear muted?
One possibility is denial — a head-in-the-sand syndrome born of disbelief that the global economy could genuinely be facing a supply shock of this magnitude and duration.
Another is miscalculation. Policymakers may believe strategic and commercial inventories can cushion the blow for longer than they actually can. That assumption deserves scrutiny. The current crisis has already crossed the threshold where running down inventories at an unprecedented pace looks less like a strategy and more like a desperate gamble.
A third possibility is that governments are allowing themselves to be guided by Washington’s persistent messaging that diplomacy is progressing and a deal is around the corner. Markets have repeatedly reacted to assertions that peace may break out any day and the Strait of Hormuz could soon reopen.
But even if such a deal materialises, there appears to be a dangerous leap in logic — namely, assuming that reopening Hormuz automatically means a rapid return to normal oil flows.
It does not.
Shipping patterns, insurance, security clearances, damaged infrastructure, and physical confidence take time to rebuild. Even Bosoni’s six-to-eight-month timeline for flows to normalise after the Strait reopens could prove optimistic. While a preliminary US-Iran deal would likely reopen Hormuz and launch talks on the more sensitive nuclear issues, that process could prove fraught and leave the recovery in Gulf flows vulnerable to renewed hostilities and interruptions if diplomacy falters.
Then there is politics.
Governments know the uncomfortable reality staring them in the face: if supply remains impaired and inventories keep falling, the only meaningful balancing mechanism left may be higher end-user prices and lower consumption.
That is rarely an attractive political proposition.
Asking citizens and industries to conserve fuel, curb discretionary travel or absorb higher energy costs is politically painful. Leaders understandably prefer to wait for better options to emerge.
But waiting could backfire.
The world is in uncharted waters. A supply disruption of roughly 15 million barrels per day — and one lasting months rather than days — has no precedent in living memory.
Yet the absence of a playbook is a poor excuse for failing to plan.
If Hormuz remains shut for weeks longer, governments and markets alike may have to confront an increasingly unavoidable truth. Demand will have to contract to match lost supply.
The only remaining question is whether that adjustment happens through deliberate and realistic planning and transparent policy, or through panic, shortages, and price spikes forcing the outcome anyway.
Energy Connects includes information by a variety of sources, such as contributing experts, external journalists and comments from attendees of our events, which may contain personal opinion of others. All opinions expressed are solely the views of the author(s) and do not necessarily reflect the opinions of Energy Connects, dmg events, its parent company DMGT or any affiliates of the same.
