Description; LONDON, March 16 (Reuters) - The United States is rapidly running out of shock absorbers to cushion the oil market from the loss of Middle East crude supplies caused by the Iran war, raising the risk of a global economic slowdown if demand picks up.As the US-Israeli war against Iran enters its third week, at least 15% of the world's oil supply is effectively trapped within the Gulf, the region's key maritime outpost, according to Reuters calculations, following the closure of the Strait of Hormuz.The Week in Breaking Views newsletter offers insights and views from the global financial commentary team at Reuters.Saudi Arabia, the world’s largest oil exporter, is trying to divert 5 million barrels per day of oil to the Red Sea port of Yanbu.The United Arab Emirates is also diverting some additional crude exports through the Fujairah oil terminal. Still, about 15 million bpd of Middle Eastern supply remains cut off from global markets — a disruption without precedent in the post-World War II era.The shock has pushed Brent crude above $100 a barrel, while global prices for refined fuels such as diesel and jet fuel have risen even more sharply, reflecting concerns of continued shortages.Iran's new Supreme Leader Mojtaba Khamenei has said the Strait of Hormuz will remain closed as Tehran seeks to pressure the United States and Israel, although he has indicated that individual countries could coordinate ship movements with Iran's navy.Washington has acknowledged that the US Navy is currently unable to forcefully reopen the waterway.While the United States has offered financial guarantees to insure ships against war damage in an effort to restart transit, most commercial vessels appear unwilling to take the risk. President Donald Trump has also urged allies to deploy warships to help secure the Strait of Hormuz alongside the United States, although any such operation is weeks away.In past crises, the world has typically looked to the Organization of the Petroleum Exporting Countries and its allied producers, collectively known as OPEC+, for spare capacity. But that's not much help in this situation.According to the International Energy Agency, there was about 3.9 million bpd of spare capacity before the war, most of which was in the Middle East, with about 1.7 million bpd in Saudi Arabia alone.The Trump administration — well aware of the political sensitivity of rising gasoline prices has spent the past two weeks pulling almost every available lever to ease pressure on the market.On Thursday, Washington issued a waiver allowing countries to buy approved Russian crude oil and petroleum products at sea for the time being. The US Treasury had already issued a similar 30-day waiver specifically for India.The volume in question is significant. According to shipping analytics firm Kpler, the total Russian crude and refined products on tankers as of March 12 totaled about 245 million barrels — roughly the same amount of Middle Eastern supply lost so far.But the headline number overstates the potential relief, even if the rebate is extended. China, India and Turkey are already buying a large portion of their oil from Russia despite Western sanctions, meaning the rebate releases far fewer additional barrels than the total volume into the market.The IEA has also moved aggressively. On Wednesday, it announced plans for its 32 members to release 400 million barrels from emergency reserves — an unprecedented drawdown equivalent to about a third of the total Strategic Petroleum Reserves managed by the agency.The United States will contribute 172 million barrels from its 415-million-barrel Strategic Petroleum Reserve, the largest contribution ever. That leaves Washington with only 100 million extra barrels that can be readily used due to technical and operational limitations, according to a note from J.P. Morgan.The Trump administration is also considering a temporary waiver of the century-old Jones Act, which would allow foreign-flagged ships to move fuel and agricultural products between U.S. ports. While that could ease regional bottlenecks — particularly by moving fuel from Gulf Coast refining hubs to the East and West Coasts its impact on crude prices would likely be modest.The same is true for most of the other options the United States has, such as allowing the sale of winter-grade gasoline during the summer driving season or urging Congress to lower taxes on gasoline and diesel.Taken together, these measures point to a clear reality: Washington is running out of tools capable of meaningfully addressing the complex effects of the closure of Hormuz on the global oil market.And when supply fails to meet demand, not only do prices rise, but consumption also typically falls. In the context of oil, this can hurt economic activity.Asia is the most vulnerable. The region relies on the Middle East for about 60 percent of its crude imports, and the full impact of the disruption is only just beginning to be felt. It typically takes about a month for a tanker to travel from the Gulf to Asia, meaning flows will begin to decline sharply in the coming two weeks.Without further supply relief, governments from South Korea to Sri Lanka could be forced to begin fuel rationing, hurting already fragile economies.Countries including Thailand, Japan, Vietnam and India are already moving in this direction. Refineries across Asia have cut operating rates to save crude oil. Some governments have ordered employees to work from home, discouraged the use of escalators and, in some cases, eliminated fuel duties to protect consumers from rising prices.With no clear sense of when Hormuz will reopen, the pressure on the global oil supply chain is mounting. As the US exhausts its contingency options, upward pressure on oil prices is likely to increase, putting further political pressure on Washington.The opinions expressed here are those of Reuters columnist Ron Bosso.
Tags
Business