The head of the International Energy Agency told the Financial Times on Friday that the world is severely underestimating the scale of the Gulf energy shock, and that it may take at least six months to restore disrupted oil and gas flows.
Fatih Birol described the conflict, now in its third week, as "the greatest global energy security threat in history", and said it would take time "to have oil and gas rehabilitated".
"It will be six months for some [sites] to be operational, others much longer," Birol warned.
Attacks on energy facilities in the Middle East continued this week, with Israel unleashing a firestorm by striking Iran's South Pars gas facility, which led Iranian forces to launch attacks on Qatar's LNG facilities that may take three to five years to return to full capacity.
Both attacks signaled that upstream energy assets were no longer off-limits, though Israel has since promised not to hit any more Iranian energy assets.
Goldman commodities expert Daan Struyven said his oil team's near-term view remains as follows:
1) oil prices will likely continue to trend higher while Hormuz flows very remain low,
2) Brent is likely to exceed its 2008 all time high if depressed flows keep the market focused on the risk of lengthier disruptions, and
3) any rise in market perceived risks of US export restrictions is likely to widen the Brent-WTI price gap further. (denied today... for now)
5 of the 7 Largest Historical Oil Supply Shocks in the Past 50 Years Were Persistent
In a separate note, Goldman analyst Yulia Zhestkova Grigsby estimates that total crude production shut-ins (primarily due to precautionary curtailments and storage management) have reached 9.2 mb/d.
Strait of Hormuz tanker crossings by the end of the week show muted activity.
Commodity chaos has already arrived:
The hardest-hit regions from the energy shock are in Asia at the moment because of their heavy reliance on imported Gulf energy. Let's not forget that diesel prices in the US have jumped above $5/gallon.
"The countries that are exposed to that supply disruption are not so much in Europe, or in the Americas, they're actually really in the Asia region," Michael Williamson of the United Nations Economic and Social Commission for Asia and the Pacific, told AP News.
Asia should prepare for "cascading impacts into all economic activities," according to Ramnath Iyer of the U.S.-based Institute for Energy Economics and Financial Analysis.
Is it only a matter of time before the energy shock in Asia spreads to the region's financial markets? There are already signs of credit market cracks (read here).