Rapidan Energy Group has warned that the economic downturn risk will escalate if the closure of the Strait of Hormuz persists until August, with severity potentially approaching that of the 2008 Great Recession.
The consulting firm's base-case scenario assumes the waterway will reopen in July. Under this scenario, daily oil demand would decrease by 2.6 million barrels, and benchmark Brent crude spot prices are projected to peak near $130 per barrel during the summer.
However, if the disruption continues beyond July, a more significant demand contraction would be required to offset supply shocks in August and September, potentially severe enough to cause a year-on-year decline in global oil consumption in 2026. Several major forecasting agencies already anticipate a rare contraction in global demand this year.
Since late February, oil prices have nearly doubled as conflict between the U.S., Israel, and Iran disrupts global markets, sparking concerns over surging inflation coupled with slowing growth.
"The current macroeconomic environment is not as extreme as the 1970s or 2007-2008 period," Rapidan analysts noted in a report, citing reasons such as economies' reduced dependence on oil and more credible monetary policy frameworks. "However, a relatively stronger starting point does not offset the risk that sustained oil price spikes could exacerbate financial and macroeconomic vulnerabilities."
The firm stated that a delay until August would expand the third-quarter supply deficit to approximately 6 million barrels per day, at which point inventories would also approach levels that are operationally difficult to manage.
Rapidan indicated that even if reopening occurs in early August, market supply and demand would tighten further before any relief becomes apparent, as crude inventory drawdowns would continue into September while production gradually resumes in the Arabian Gulf and shipments begin reaching their destinations.
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