This Is the Worst-Case Scenario for Oil Prices

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Oil markets are losing an estimated 15 million barrels per day from the closure of the Strait of Hormuz—a loss that spells disaster for the global economy.

Among most people in the financial world, the idea of a near-total halt in flows of oil through the Strait of Hormuz has long been considered a “fat tail” risk scenario: one that would be immensely important, but would probably never happen. The political risk consultants like me who they deal with were often seen as “crying wolf” when they had the idea that there was even a small probability of that happening. Time and again, there were brief periods where things looked like it was at least possible that the Persian Gulf would see a conflagration, with concerns about Israel going it alone in 2007 and 2012, President Donald Trump pulling out of the JCPOA in 2018, the 2019 Iranian drone attack against critical Saudi oil infrastructure at Abqaiq, the US killing of Gen. Qasem Soleimani in January 2020, and other episodes. None of them ended up having a major impact on the availability of oil. Those of us professionally involved in this even spoke of “Iran fatigue,” where clients would be eager to move on to the next subject during a presentation.

Now, however, the wolf is actually here.

All the supposed firebreaks that would prevent this from happening have failed. Some of them have historically been staples of a number of hawkish commentators about the Middle East: that Iran would not even retaliate facing such an overwhelmingly dominant United States, that it would not........

© The National Interest