The closure of the Strait of Hormuz has already removed an estimated 1.2 billion barrels of oil from global markets, according to Daniel Yergin, Vice Chairman of S&P Global.
Yergin made the comments during an interview on CNBC’s Squawk Box on Monday, May 18, as concerns grow over oil supply disruptions and rising fuel demand heading into the Northern Hemisphere summer.
He said, “What’s happening now is the inventories that have helped keep prices from going too high are getting pretty much drained out, and that’s the key factor. Our numbers are that before the crisis, about 135 ships a day went through the Strait of Hormuz in May. It’s been nine ships a day, so you’ve lost about 1.2 billion barrels of oil so far.”
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Yergin said Iran has strengthened its control over the strait during the crisis, explaining “They have set up what they call the Persian Gulf Strait Authority. If you want to send a ship through, they send you an Excel sheet that you have to fill out, and then they’ll decide whether you can go through or not.”
He added that countries in the region are resisting the arrangement.
The interview focused heavily on the impact the disruption could have on oil prices. Yergin said increased driving and air travel during the summer months could tighten fuel markets further.
“If we remain on the track that we are in, we’re going into the season of increased driving around the world, increased air travel around the world, so the call on fuel is going to go up,” he said.
Yergin said physical cargo prices are already reflecting tighter supplies.
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“If you watch what people are actually paying for cargoes, those prices are higher, and that shows that there is a shortage,” he stated.
While he expects prices to ease if a diplomatic agreement is reached, Yergin warned the recovery process would not happen immediately.
“The cleanup, we think, would take about six months to get everything back to normal,” he said.
Yergin estimated oil prices could eventually return to levels seen before the military escalation.
The Strait of Hormuz, located between Iran and Oman, is one of the world’s most critical oil transit routes. The waterway connects the Persian Gulf with the Gulf of Oman and the Arabian Sea. Major oil producers including Saudi Arabia, Iraq, the United Arab Emirates, Kuwait and Iran rely on the route to move crude and petroleum products to global markets.
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