The end of the beginning - the state of global energy markets after ten weeks of war

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The end of the beginning - the state of global energy markets after ten weeks of war

Nick Butler<br>May 10, 2026

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Discussion of the impact of the conflict in the Persian Gulf on the international energy market is clouded by the fog of war; by uncertainty about the intentions of President Trump and the new Iranian leadership  and by the reluctance of many Governments to admit the scale of the challenge .  This is therefore a good moment to lay out a fact based summary which will help readers to draw their own conclusions about the consequences of what has happened since February 28th.<br>1.        In normal times around 100 to 140 vessels including 50 to 55 tankers carrying oil, liquefied Natural Gas, fertilisers, petrochemical feedstocks and refined oil products passed through the Straits of Hormuz each day.  Since early March that flow has reduced to a trickle.  One recent estimate suggests that some 1900 to 2,000 vessels including between 100 and 200 tankers  are stranded in the Gulf.<br>Because of the journey times involved the last of the tankers and other ships which passed through the Straits before the war began have only recently arrived at their destinations in Asia and Europe.  Following their arrival the flow of supplies has now dried up.  This means that we are now at the end of the beginning and that economies around the world are starting to feel the impact not just of the fears and speculation reflected in rising prices but also of physical shortages.<br>1.        The problems we now face are not simply the result of the closure of the Straits.  The Iranian response to the attack by the US and Israel has amplified the impact of the closure by targeting energy related infrastructure located in areas around the Gulf.  These attacks have continued since the nominal ceasefire came into effect on April 7th/8th causing damage to facilities such as the petrochemical plant at Ruwais, the Habshan and Shah gas plants in Abu Dhabi and the alternative transit routes - the East West pipeline in Saudi Arabia and the port of Salalah in Oman. The overall extent of the damage done is unclear but in some cases is obviously substantial.  At least eight significant Gulf refineries are fully or partially out of action.  So is the Ras Laffen LNG facility in Qatar.  The Qatari Government has said that that reconstruction of the facility could take 3 to 5 years.  Repairs to the refineries, which are complex modern industrial plants, is likely to take many months at the very least.  Facilities in Iran, including the refinery at Laban Island, have also been hit but there is no clear evidence of the extent of the damage they have suffered.<br>2.        In contrast to the energy crises of the 1970s the shortages now developing are not focused on crude oil but on oil products which are created through the refining process.  An excellent detailed explanation of this is available in the Substack  Crack the Market.   (https://crackthemarket.substack.com/ )Those managing the crisis or wanting to understand the challenges of the next few months should read that analysis.<br>3.        The main shortages which are now evident are in products such as jet fuel and diesel.  Before the war Europe imported 60 per cent of its jet fuel needs from the Gulf region.  The UK was overwhelmingly reliant on jet fuel supplies from the region.  The refineries of the  Gulf states in Saudi Arabia, the UAE and Kuwait also supplied a large proportion of Europe’s requirement for diesel - the main source of fuel for freight lorries and other key transport uses including crucial links in the extended food supply  chain. The shortage of jet fuel and diesel is global and the intense competition for supplies is pushing up prices which are rapidly passing through the chain to the end consumer.<br>4.        The impact of what had happened so far has been softened over the last two months by the drawdown of stocks – in total worldwide amounting to some 400- 500 million barrels - but stocks can only be drawn down once and will need to be rebuilt (if supplies are available) over coming months  – an issue which suggests that the optimistic forward price curve which currently forecasts a fall in prices to around $ 80 by this time next year is over optimistic.<br>5.        The normal response to disruptions in any market is a search for alternative sources of supply.  In this crisis, however, the availability of substitutes is limited.<br>The only available alternative export routes for oil from the Gulf are the East West line across Saudi Arabia from Abqiaq to Yanbu on the Red Sea coast and a small pipeline running across Oman from Nahdah to the storage and export terminal at Raz Marqaz on the Arabian coast.  In both cases the scope for increasing capacity is limited. There is no alternative export route for  Natural Gas. Most of the world’s spare...