The Gap That Won't Close

Chart of the Week #97

Everyone knows the Strait of Hormuz is closed. Fewer people have done the arithmetic on what that actually means.

Let me show you.

Before President Trump’s ill-conceived war on Iran, roughly 15 million barrels of oil passed through the strait every single day. Not 15 million barrels a month. Per day. That’s roughly 15% of all the oil the entire world burns — not traded oil, not seaborne shipments, but total global consumption. No other chokepoint on Earth comes close.

So what can actually replace it?

The bypass pipelines are real. Saudi Arabia’s East-West Pipeline has nameplate capacity of around 5 million barrels per day. The UAE’s Habshan-Fujairah line adds another 1.5 million. Combined: 6.5 million barrels per day on paper — and we’re being generous, because pipelines rarely run at nameplate capacity.

Then there’s the IEA’s emergency release — 400 million barrels from strategic stockpiles, the largest in history. But as I wrote a few weeks ago, what matters isn’t the total. It’s the daily flow. Based on every prior emergency intervention, the actual drawdown rate works out to roughly 2 million barrels per day. That buys about 200 days before the tap runs dry.

Add in the shadow fleet — tankers still running the strait with transponders off, taking the risk, collecting the premium — and you get perhaps another million barrels per day.

Now add it all up. Pipelines: 6.5 million. IEA drawdown: 2 million. Shadow fleet: 1 million. Total replacement supply: 9.5 million barrels per day. Pre-closure flow through Hormuz: 15 million barrels per day. Take a look at how that gap looks visually.

As you can see, the shortfall is 5.5 million barrels. Every single day. And it compounds. Day one, you’re 5.5 million barrels short. Day thirty, you’re 165 million short. By day one hundred, you’re more than half a billion barrels in the hole — and the IEA’s entire record release covers less than three months of this gap at current drawdown rates.

Note: Recent reports suggest Saudi Arabia has converted parallel NGL lines to carry crude, pushing the East-West Pipeline closer to 7 million barrels per day. Even so — even if you give the pipelines every benefit of the doubt — the combined bypass capacity tops out around 8.5 million. Against a 15 million barrel shortfall, it’s not enough. Not close.

Now, some will say demand softens at these prices — and they’re right. But even if you haircut the gap by a third on demand destruction alone, you’re still looking at the worst structural shortage since the 1970s oil crises. What about non-OPEC production — U.S. shale, Brazil, West Africa, etc.? Also real. But meaningful new volumes from any of those sources take six to eighteen months to materialize. They don’t change the near-term picture.

And it’s getting worse, not better. On Tuesday, IEA executive director Fatih Birol warned that April will be “much worse” than March — and said the agency is already weighing a second emergency release. The largest coordinated stockpile drawdown in history isn’t even a month old, and they’re already talking about doing it again.

Then last night, in his first national address on the war, Trump presented no plan to reopen the strait. None. He told allies to “get your own oil” and signaled he’s willing to end the conflict without restoring access to the waterway at all. Iran’s military responded by vowing attacks that are “more crushing, broader and more destructive.” Oil crossed $111 a barrel this morning.

This is what $200 oil sounds like before it gets there.

Regards,

Lau Vegys

P.S. In our latest issue — published earlier this week — we walk through exactly what this means for markets and the two positions we’ve built around it. If you haven’t read it yet, make sure you don’t miss it — the intro is available to all subscribers, even if you’re not yet on the paid side.