The global oil market is moving toward physical shortages and possible demand rationing within the current quarter if disruption in the Strait of Hormuz persists, Darrell Cronk, President of Wells Fargo Investment Institute, said in a Tuesday note.
Cronk estimates cumulative supply losses tied to the conflict and partial closure of the key shipping route have reached about 600 million barrels as of early May. The disruption reflects not only delayed shipments, but also production effectively removed from the system through shut-ins, damage, and deferred output.
With inventories and floating storage already significantly reduced, the market has limited remaining capacity to absorb additional shocks. If the strait does not reopen soon, the system may require demand destruction of 4 to 5 million barrels per day within weeks to restore balance.
Supply disruptions are expected to take roughly 30 days to fully transmit through the system, meaning physical shortages at the consumer level could lag the initial shock.
The most immediate stress is expected in natural gas and in intermediate- and medium-sour crude grades. Downstream impacts would likely emerge first in refined products, particularly diesel and jet fuel, before crude scarcity becomes visible to end users.
A likely sequence of disruption would begin with petrochemicals and LPG, followed by diesel, affecting freight, agriculture, and industrial activity, and then jet fuel, which would constrain airline capacity and broader mobility.
Import-dependent emerging markets are expected to experience the earliest strain, followed by Europe and other developed regions. Potential policy responses could include fuel allocation systems, airline capacity limits, and emergency consumption controls if shortages intensify.
The US is partially insulated due to strong domestic production and Canadian pipeline imports, but global pricing would still transmit higher fuel costs domestically. Elevated energy prices could add to inflation pressures heading into the summer driving season and complicate interest rate expectations.
Cronk also highlighted longer-term structural risks, noting that global energy supply chains have become less redundant and more vulnerable than widely assumed. It warned that prolonged disruption to infrastructure in the region could extend recovery timelines well beyond past oil shocks, even if geopolitical tensions ease.