The Hormuz Billion-Barrel Oil Shock Is About to Crash Demand

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In Waves

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Worldwide demand already faces a hit of 5.3 million barrels a day this quarter, and a 12-week disruption of Hormuz would propel Dated Brent, the world’s key physical crude price, above this month’s record to $154 a barrel, according to consultant FGE NexantECA.

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“Because there is still no visible disaster” in the west, “people think everything is okay, and a bit higher pump prices are the only impact,” said Cuneyt Kazokoglu, FGE’s director of energy transition. But demand destruction “will come and is coming in waves. Asia was first in line, Africa is the next one. Europe has already started talking about the lack of some fuels and feeling the price impact.”

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Ultimately, in a market where demand needs to adjust down to match lower supply, oil prices may be what drive that recalibration.

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In extreme scenarios, where price alone forces the market to balance, FGE estimates that crude oil would need to surge to $250 a barrel.

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Several analysts said privately that extreme uncertainty about what will happen in the conflict makes it almost impossible to model the demand impact. But without a swift resolution, the economic consequences could be profound.

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“If you don’t get any reopening in three months’ time, then the case becomes a macro issue where the world is about to fall into recession,” Frederic Lasserre, Gunvor’s head of research, told the FT Commodities Global Summit in Lausanne. The firm has even stress-tested the prospect of oil spiking to $200 or even $300 a barrel.

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A particularly sensitive area are so-called middle distillates, which include diesel. Prices in Europe surpassed $200 a barrel last month, the highest since 2022. In India, truck fleet operators are bracing for fuel rationing and the first significant diesel price increases in years.

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“A few more weeks, we will start seeing announcements of problems with securing diesel supply — that’s the backbone of the world’s economy for moving goods around,” Vikas Dwivedi, a strategist at Macquarie Group, said in a Bloomberg television interview. “When it hits diesel, that is when when we will all know it and feel it.”

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Aviation is also particularly vulnerable. Airlines in Asia were among the first to react, with Vietnamese carriers and Air New Zealand cutting back routes. Now the impact is spreading, with Deutsche Lufthansa AG scrubbing 20,000 short-haul flights from its European summer schedule and KLM curbing operations. 

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Even in the US — relatively shielded from the crisis by its domestic energy abundance — United Airlines Holdings Inc. is reducing planned growth by about 5%, and now expects capacity — or available seat miles — in the second half of 2026 to be flat to up about 2% from a year earlier. 

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Gasoline is starting to feel the effect: American drivers may be spending more on the fuel, but with average prices above $4 they’re buying 5% fewer gallons than a year ago, according to Barclays Plc. 

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“Higher prices over the past month-and-a-half have led to fuel demand destruction from the US consumer,” analysts at the bank including Josh Grasso and Amarpreet Singh said.

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In the weeks after the war erupted, consuming nations moved to buy themselves some time.

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IEA nations such as the US, Germany and Japan announced an unprecedented release of 400 million barrels in an effort to plug the yawning supply gap, and China also tapped its buffer. Yet depleting such inventories wears down the world’s safeguards, ultimately leaving it more exposed. 

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“We’ve borrowed supply,” Russell Hardy, chief executive officer of Vitol Group, the largest independent trader, said at the FT Commodities Global Summit in Lausanne this week. “But you can’t do that forever. There are recessionary consequences from having to ration that demand.”

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—With assistance from Alex Longley, Rachel Graham, Paul Burkhardt, Kathy Chen, Bill Lehane, Jack Wittels, Lucia Kassai, Mia Gindis and Kate Duffy.

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