The War May End Soon. The Oil Shock Will Not.

The oil shock will be mild and short‑lived? Not so fast. Roughly 20 million barrels per day (mbpd) normally flow through the Strait of Hormuz. Emergency workarounds are moving about 8 mbpd, leaving 12 mbpd offline—about 12% of global oil supply. That is unprecedented.

For comparison: The 1973 OPEC embargo removed about 7% of global supply—and oil prices quadrupled. The 1979 Iran crisis removed about 4%. The relatively mild 2022 Russia shock removed 3%, yet oil still briefly hit $130 per barrel.

12 mbpd adds up…fast. Even if a ceasefire were declared today, the oil shock from existing curtailment, plus restart time, would likely exceed one billion barrels. Let’s put that in context: outside China, the world holds only about 1.2 billion barrels of strategic reserves. Those reserves are not a reset button; they are a stopgap. Before the reserves can be refilled, the global oil system itself must be restarted.

Assume someone—the U.S., Iran, NATO—declares the Strait of Hormuz “open.” Here is what is involved in a restart:

ABOVE-GROUND DAMAGE: REFINING MATTERS.  Across the Middle East, oil and gas infrastructure has taken real damage—not just export routes, but refineries, gas‑processing plants, storage facilities, and power systems. Some of this damage will take months or years to repair. Refining damage is critical. Crude oil is not gasoline, diesel, or jet fuel. A world short of refined products behaves very differently from a world short of crude alone. Even if upstream production recovers quickly, damaged refining capacity constrains usable fuel supply, extending economic pain long after the shooting stops.

BELOW-GROUND DELAYS: RESERVOIRS DO NOT RESTART CLEANLY. Modern oil production relies on continuous pressure management—especially waterfloods and gas injection. When production is abruptly halted, reservoir behavior changes. Pressure equalizes, fluids migrate unpredictably, and some oil becomes permanently unrecoverable. Restarting production often takes weeks or months of re‑pressurization and well work. Some wells never return to prior flow rates at all. 

INSURANCE AND TRANSIT: OIL DOES NOT MOVE ON DECLARATIONS. Oil does not move without insurance. Tankers, ports, pipelines, and refineries all require coverage, and war‑risk insurance is governed by actuarial judgment, not speeches and press conferences. Insurers must believe hostilities have truly ceased and are unlikely to resume. That confidence returns slowly.

Even when insurance returns, physical constraints remain. The global tanker fleet is finite and badly dislocated. Ships have been rerouted, stacked up, or idled. Clearing backlogs and restoring reliable shipping cadence takes weeks, not days. Markets may move on headlines. Barrels move on steel, sea lanes, and time.

We are talking months, not days for restart. And there is another problem. Recent Ukrainian drone attacks have taken roughly 2-3 mbpd of Russian oil exports offline. Absent the Iran crisis, Russian oil damage would dominate headlines. The lack of coverage does not change the math: returning to “normal” now requires replacing not only Iranian barrels, but Russian barrels as well.

There is no replacement oil. Before the war, the world was already producing near capacity. OPEC may have had a few million barrels per day of theoretical spare capacity—but if those barrels exist, they are trapped by the Hormuz disruption.

What about the United States? Tapped out. Production growth from the shale fields of Texas, New Mexico, and North Dakota has begun to decline after years of slowing growth.

Outside the U.S., strain is already visible. In Asia and the Middle East—where storage tanks are actually running dry—physical oil is already trading near $140 per barrel. The United States is not insulated because we have “so much beautiful oil.” Crude oil is useless unless it can be refined. Most U.S. refineries cannot efficiently process shale oil. The U.S. exports roughly 4 mbpd and imports about 6 mbpd to balance refinery needs. Oil is a global commodity. Prices set in Asia and the Middle East will become prices here.

The generations alive in America today have never lived without oil and gas. We therefore take them—and everything they power and make—for granted. Simultaneously we have pretended there could be a painless and meaningful energy transition. We have pretended “green” energy is actually green. And now we are pretending that losing 12 mbpd of oil is a minor inconvenience that will somehow bypass the United States.

It will not.

Every molecule of oil and natural gas is precious. A single barrel of oil contains the energy equivalent of more than ten years of human labor. (yes, years) Perhaps, in the long run, this war’s brutal reminder of energy reality will be a good thing. But in the short and medium term, the oil shock is only just beginning.