Summary
Highlights
Peter Zeihan explains that a significant oil crisis is imminent, expected in June or early July. Since the Iran war began, there has been a shortfall of 9 to 13 million barrels per day of Persian Gulf crude. Global inventories are being depleted, and basic operating levels will be reached for much of the world by early July. Despite the shortages, demand for crude has not significantly decreased, leading to continued consumption as if it's not a long-term problem.
Two main factors have temporarily delayed the crisis. First, strategic reserve releases approved by the IEA, particularly from the United States, have supported Europe. The U.S., being a net exporter, sends about 2 to 2.5 million barrels per day from its strategic petroleum reserve to assist European needs. Second, China's petrochemical sector has substituted a portion of naphtha with processed liquefied coal, reducing their reliance on oil for about 1.5 to 2 million barrels per day. Additionally, China's adoption of small electric vehicles and a coal-powered grid has offered some buffer. However, these temporary measures are expected to evaporate within the next 3 to 6 weeks.
Zeihan states that even if hostilities cease and the Persian Gulf reopens, it would take months, if not years, for crude flow to normalize. This means the late June/early July deadline for the crisis is likely unavoidable. When the crisis hits, prices will skyrocket, leading to 'demand destruction' where prices become so high that parts of the economy can no longer afford crude-derived products, causing their demand to collapse until prices fall. This scale of disruption is compared to World War II, unprecedented in recent history.
The regions most severely impacted will be Northeast Asia, which imports over 90% of its crude, primarily from the Persian Gulf. While they've diversified slightly to former Soviet Union and Western Hemisphere sources, it's not enough to make a material difference. Europe will be the second-worst affected, also importing 90% of its crude, but with better potential to tap into alternative regions like North America, North Africa, and West Africa.