Hormuz oil shock too large for markets to absorb, could lead to global recession: Analyst

• Oil prices are currently 'shockingly low' and underpricing the severity of the Strait of Hormuz closure, which has taken 15-20 million barrels per day (BPD) off-line.
• The market has been 'hard-wired' to sell off geopolitical events, but this crisis is different due to the sheer scale of supply loss, comparable to peak COVID demand destruction.
• Physical tightness will hit Asian markets in 2-3 weeks, leading to aggressive crude stock drawing and potential for $2-3/bbl daily price increases, or $10-15/bbl jumps if infrastructure is targeted.
• Alternative pipelines and record IEA strategic releases (400M barrels) are insufficient to offset the daily supply gap, and the longer the disruption, the harder it will be to resume normal flows.
• A prolonged closure could lead to $200/bbl oil, causing recession in wealthy nations and outright physical fuel shortages in poorer countries.

Rory Johnston warns that the oil supply disruption from the Strait of Hormuz is too significant for markets to absorb, with current oil prices underpricing the severity of the crisis. He anticipates potential surges to $200/bbl, leading to global recession and severe shortages in poorer countries, as existing alternative routes and strategic releases are insufficient.