Supply Chain Social Media and Updates

West Braces for Next Wave of Oil Rationing

Headed into month three of the oil crisis, the energy rationing that hit Asia and Africa is headed West. JPMorgan's commodity desk put out an internal memo recently that made the rounds. The Strait of Hormuz closure removed 13.7 million barrels per day from global supply in April. The world has been drawing down inventories at roughly 7 million barrels a day, activating whatever spare production capacity exists, and rationing. But after every inventory drawdown and every petrochemical plant going dark across Asia and Africa, there's still roughly 2 million barrels per day unaccounted for. And that means there's still more rationing to come. The signs are showing: Europe is already feeling it in diesel, with prices surpassing $200 a barrel last month. Lufthansa just cut 20,000 short haul flights, and American drivers are buying 5% fewer gallons at $4 a gallon. JPMorgan calls it "a supply loss showing up on the demand side of the ledger." At some point, the West will face the same set of decisions that hit Asia first: deciding who gets molecules, and who doesn't. The question we kept coming back to on Open Circuit is whether any of this sticks. We're looking at a multi-year window before supply chains return to anything resembling normal. Is that long enough for new technologies and feedstocks to take hold? And if you're an insurer right now, do you reinsure the refining and export infrastructure that was just damaged. Or do you start treating it like the house on the beach that keeps getting hit by hurricanes? If capital decides this is a permanent risk rather than a one-time disruption, the security premium will get baked into imported molecules for a long time. I started this crisis a little skeptical that we'd see much influence on the energy transition, but my eyes are open to the lasting impact this will have. We grapple with the impact of rationing on the latest episode.