Oil Market's Glut Narrative Just Blew Up
Global oil supply chains are facing severe disruptions due to escalating conflicts in the Red Sea and the Black Sea. Key chokepoints like the Strait of Hormuz and the Bab el-Mandeb Strait are experiencing blockages, leading to rising Brent crude prices and increased shipping costs.
Why it matters
The convergence of geopolitical instability and supply chain bottlenecks threatens to trigger a global recession and sustained energy price inflation.
Less than a month ago, analysts were warning of a looming glut of crude oil as tanker traffic via the Strait of Hormuz began to recover amid a U.S.-Iran ceasefire. Within days of these warnings, the ceasefire was a painful memory, missiles were flying again, and now Yemen's Houthis are striking tankers in the Red Sea, which makes two blocked oil chokepoints and a very real danger of a global recession. Brent crude this week topped $100 per barrel on reports that the Houthis had struck two Saudi tankers in the Bab el-Mandeb Strait, which Saudi Arabia is currently using as the primary outlet for its crude amid the Iranian blockade of the Strait of Hormuz. Soon enough it emerged that tankers that were heading to the Red Sea waterway were making U-turns and heading to alternative routeswhich take longer and cost more.
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