Not a single barrel of oil has been lost, and that’s consistent with what we've seen in past periods of heightened tension. Even with active shooting wars, oil somehow continues to flow from the Gulf. Right now, both Iran and Israel appear to be carefully avoiding any actions that would directly impact crude oil exports through the Strait of Hormuz. So, the market seems to be in a "wait and see" mode. If Iran were to lose its restraint and try to close or even disrupt the Strait, or if Israel decided to attack Kharg Island or another major export terminal, then the risk premium would rise significantly.
Is Asia sitting on enough inventories to ride out any storm?
China will be almost certainly making its views known to all parties involved - basically saying that it’s not in anyone’s interest to disrupt oil supplies. In a worst-case scenario where the Strait of Hormuz is closed and 20 million b/d is taken offline, China could manage for a while as they have vast inventories. The country most at risk would be India, which lacks significant strategic reserves and would quickly find itself in serious trouble. If that happened, you’d see a scramble for oil globally.
What if LNG shipping were to be disrupted?
The price would spike and price-sensitive buyers like India and China would likely cut back immediately. Countries like Japan and South Korea - two of the largest LNG importers in North Asia - could switch to coal. Losing Qatar’s LNG would certainly matter as it’s the world’s second-largest LNG exporter, but the global market could adapt. In a worst-case scenario, sanctions on Russia’s Arctic LNG 2 project might even be lifted to bring that supply to market.
China oil demand appears to have been strong in recent months?
Yes - and June looks solid too, but they’re not refining it - they’re storing it, so it’s not real consumption. And now that prices are climbing again, I expect Chinese imports to fall by August. Outside of China, I’m not seeing strong demand growth. India is up slightly, but Japan, South Korea, and Indonesia are all rather flat.