Dallas Fed's Logan Warns of Global Oil Supply Tightness Without Swift Strait of Hormuz Reopening

Dallas Federal Reserve Bank President Lorie Logan issued a warning that global oil and natural gas supplies could begin to tighten if shipping through the Strait of Hormuz does not return to normal soon. Logan's district includes the Permian Basin, the world's largest shale oil region. She stated that U.S. production cannot fill the global oil supply gap caused by conflict in Iran. Speaking at a Bank of Japan conference in Tokyo on Wednesday, she noted that constraints on capital, labor, and other inputs, combined with physical bottlenecks for exporting natural gas from West Texas fields, mean consumers may face a new reality: key fuel sources may no longer be as abundant as in the past. Logan indicated that due to the conflict, approximately 10% of global oil supply is effectively trapped in the Persian Gulf. She added that, so far, the release of reserves has helped fill the gap to some extent, but stockpiles are ultimately finite. "In a highly supply-constrained environment, if shipping through the Strait of Hormuz does not return to pre-conflict levels soon, global oil and natural gas consumption may need to decline more significantly than it currently has," Logan said. "The economic consequences will depend on the extent to which end-users can switch to other energy sources, improve energy efficiency, or reduce economic activity." Before becoming Dallas Fed president, Logan worked in the markets division at the New York Fed. She reiterated calls to enhance the resilience of the U.S. Treasury market during crises. She suggested that the Federal Reserve should centralize the clearing of its open market operations and find better ways to distinguish between asset purchases aimed at supporting market functioning and those intended to stimulate the economy. "Building a richer toolkit during calm periods will help enable more flexible and targeted responses during any future stress," Logan stated. She also addressed issues of declining birth rates and an aging population, noting that in such an environment, central bankers will need to redefine what constitutes healthy labor force growth and economic growth.