The Global Economy Meets an Energy Shock

Why It Matters

The crisis illustrates how geopolitical disruptions can quickly translate into physical‑market premiums and supply‑chain stress, forcing businesses and governments to reassess energy‑security strategies.

Key Takeaways

• Pre-war oil market expected oversupply of ~4.6 million barrels daily.
• Hormuz closure cut ~20% supply, but logistics, not production, drove prices.
• IEA released record 400 million barrels emergency stock, quickly depleted.
• Physical oil premiums spiked $30‑$45 above futures, raising refinery costs.
• Asian importers with low reserves faced sharp price shocks and volatility.

Summary

The INSEAD webinar titled “The Global Economy Meets an Energy Shock” examined how the Middle‑East conflict has upended oil markets and, by extension, the broader economy. Professor Antonio Fatas introduced energy‑market specialist Adi Imsirovic, who outlined the pre‑war outlook of a 4.6 million‑barrel‑per‑day oversupply that had set expectations for a contango market and low spot prices.

Imsirovic explained that the closure of the Strait of Hormuz removed roughly 20 % of global supply, but the price surge stemmed more from logistical bottlenecks than from a physical shortage. The International Energy Agency’s unprecedented release of 400 million barrels of emergency stock cushioned the shock temporarily, yet those reserves have already been drawn down, with demand destruction estimated at 2.8 million barrels in March and rising.

Physical market premiums exploded, with dated Brent trading $30‑$45 above futures, freight rates soaring fivefold, and insurance costs adding further strain. Asian importers, especially those with limited strategic reserves, bore the brunt of the price spikes, while benchmarks such as Dubai adjusted assessment rules, highlighting market distortions.

The episode underscores a looming risk of hitting operational floor levels—around 7 billion barrels of essential stock—by early June if the strait remains closed. Continued volatility could erode refinery margins, raise input costs for manufacturers, and force policymakers to reconsider strategic reserve policies and supply‑chain resilience.

Original Description

The conflict in the Middle East has pushed oil prices and geopolitical risk back to the top of the macroeconomic agenda.

In this session, Antonio Fatas, Professor of Economics at INSEAD, and Adi Imsirovic, a leading expert in oil markets and guest lecturer at the University of Oxford, discuss the most recent developments in oil markets and what it means for inflation, central banks, and the global outlook. They also share what business leaders should be watching next.