Iran War: Light At The End of The Tunnel?

Too bad its blowing the horn and approaching fast

The war of choice on Iran, started by the US and Israel, has entered its second month. While mid-week a fragile off-ramp seemed to be emerging out of the fog of war, it turned out to be nothing but a mirage—for now. In the meantime losses to both military hardware and crude oil production continue to mount, together with the risk of a global food crisis, in what appears to be a concentrated attack on the world economy. Summary of week four from an energy / supply chain perspective.

Note: I will be away next week and most likely won’t be able to react to the events unfolding. That doesn’t mean that you will be left without a post, though. I have prepared an essay on the long-term effects of this crisis on manufacturing and what that means for the future of the global economy. Stay tuned.

Thank you for reading The Honest Sorcerer. If you value this article or any others please share and consider a subscription, or perhaps buying a virtual coffee. At the same time allow me to express my eternal gratitude to those who already support my work — without you this site could not exist.

The flow of oil through the Strait remains a trickle, carrying mostly Iranian crude to China. 14 million barrels of crude oil and 5 million barrels of refined products a day (gasoline, diesel, jet, and bunker fuel) is unable to pass the Strait of Hormuz for almost five weeks now. Nearly 500 million barrels in total has been lost so far. That’s 250 very large crude carriers (VLCCs or tankers). A combination of pre-war surplus, oil in transport (on ships), diversions through pipelines to the Red Sea (Yanbu) and the Gulf of Oman (Fujairah) helped cushion the blow, providing a temporary buffer and relief. With the buffer gone, inventories drawn down, and pipeline diversions maxed out at around 4.1 million barrels of crude a day¹, however, the system has shifted from buffered to a fragile state. Europe, with 20% of its combined supply of crude plus refined fuel coming from the region, has to directly compete with Asian economies. Every barrel lost will be felt directly from now on.

This situation leaves Gulf countries in an especially dire situation. Unable to get more than 10 million barrels of crude and 5 million barrels of products a day out of the region, they had to start cutting back production. According to Kpler production outages have reached 10.7 million barrels a day by March 20 already, and expected to jump to 11.5 million barrels by late March. Shutting off oil wells is neither easy, nor comes without a risk, though. Once done, the risk of permanent damage to reservoirs (due to a slow dissipation of pressure) increases each week the war goes on. You see, in order to maintain a high level of oil production pressure is essential—once that vanishes, it becomes extremely hard to restart, let alone ramp oil extraction back up to previous levels. Hence the estimates of months (not weeks) till exports could resume to previous levels once hostilities end.

Source: Kpler

Countries importing large volumes from the Gulf are not in a much better situation either. Having been cut off from supply, and after seeing the last ship unload its cargo, they had to start tapping their reserves. Releases from SPR (strategic petroleum reserve) is limited by logistics and geology, though. Retrieving the oil from deep, underground storage caverns is inherently constrained, as lifting the oil too fast risks collapsing the salt and rock cavities. Getting the crude from storage to refineries is restricted by pipeline capacity, truck / ship availability, and loading capacity designed to smooth out small disturbances not a complete halt to deliveries. According to estimates only 2.3 million barrels a day (worldwide) can be supplied this way.

Refinery and export terminal hits are also contributing to the crisis—not just in the Gulf, but elsewhere, too. In parallel to the chaos in West Asia, Ukraine (with American satellite targeting and guidance) have knocked out 42% of Russia’s oil exports temporarily, by shutting down three oil sites in the Leningrad region, attacking export terminals on the Black Sea and by hitting ships elsewhere. The world has lost another 1.8 million barrels. Bombing / taking over Kharg island—should we get to that point—would take another 1.4 million Iranian barrels off the market. And while these volumes were mostly flowing to China, taking them out would (ahem, will) make the East Asian giant to go look for more oil elsewhere.

Fires burn in the port of Ust-Luga, Russia, after a Ukrainian strike on the night of March 25.

On the kinetic front the missile gap continues to widen further. Given that Iran has damaged at least a dozen US and allied radars and satellite terminals, the efficiency of interception decreased greatly. Using 10-11 interceptors for one missile or 8 Patriot rockets for one drone is simply unsustainable… Hence the Iranian hit rate of 80%—even according to Israeli sources—which is especially critical knowing how Iran, the Yemeni “Houthis” (Ansar Allah) and Hezbollah are coordinating their attacks as of late. US air bases as a result of Iranian missile and drone dominance have also become uninhabitable, with expensive and rare planes being hit on the tarmac. Meanwhile Iran is also suffering major damage—but mostly to its civilian infrastructure. The US-Israeli forces have slowly run out of military targets to hit, with most of it being buried deep inside mountains, where not even bunker buster bombs can reach them... Besides, Russia and China are also both supplying the Islamic Republic with whatever goods, food, energy, weapons, targeting information etc. it needs, while it would take years (and an untold amount of rare earth metals) to replenish lost US hardware (planes, drones, radars, missiles etc.) In this global war of attrition Iran and its allies have clearly got the upper hand.

No wonder Trump keeps telling the public that the time frame set for this war was 4-6 weeks. If you are running out of missiles and critical air assets, what else could you say? That we planned for pulling a Venezuela on Iran but failed, and now we are running out of ammo? Surely you jest. Instead we can expect a shift in focus: from targeted attacks and regime change attempts to wholesale destruction: “We are going to hit them extremely hard over the next two to three weeks. We’re going to bring them back to the Stone Ages, where they belong.” That statement in itself, made by Trump during his address to the nation, delivered Wednesday, April 1, 2026, is more than egregious. Nevertheless he continued to double down on his threats. “If there is no deal, we are going to hit each and every one of their electric generating plants very hard and probably simultaneously. We have not hit their oil, even though that’s the easiest target of all, because it would not give them even a small chance of survival or rebuilding. But we could hit it and it would be gone. And there’s not a thing they could do about it.” Well, knowing Iran’s steadfastness in the matter, that move would practically ensure the destruction of all Gulf countries together with their oil production capabilities in a retaliatory strike carried out by the IRGC.

If that weren’t enough, Trump also told his ‘allies’ to get their own oil—which is especially rich, since before the US-Israeli attack on Iran oil flowed uninterrupted through the Strait of Hormuz. “Go to the straight and just take it, protect it, use it for yourselves. Iran has been essentially decimated. The hard part is done, so it should be easy.” According to this proposal, which would make even underpants gnomes blush, “when this conflict is over, the strait will open up naturally. It’ll just open up naturally.” Yeah, sure, I get it. Step 1: Bomb Iran. Step 2: …? Step 3: Hormuz opens up naturally… Just don’t ask what’s step two is.

The underpants gnomes’ plan. Clip from South Park S02E17

Iran has just gained a tremendous leverage over the world economy: controlling 20% of the flow of oil and LNG, not to mention commanding a similar portion of fertilizer² 9% of Aluminum and 40% of Helium trade. Iran, as a result of this conflict, has become a global power, and they are not willing to let go of it. Instead, they demand paying a 2 million dollar transit fee at the toll booth.³ And while this might sound a lot, it actually really isn’t that much: a large tanker can carry up to two million barrels of oil, which translates into exactly $1 paid per barrel, or 0.7 cents per liter of refined fuel. According to their proposal, countries should pay this toll in Iranian Rials, which, of course, would make a huge amount of sense for the Islamic Republic. First, sanctions would have to be lifted by parties willing to pay. Second, the demand for rials, as a result, would also rise, strengthening the Iranian currency and economy. Third, having a firm on grip on 20% of world supply, Iran would also be able control the price of oil, without having to cut back on its own exports. No wonder US elites are furious and not willing to give Iran a free pass on this. They rather bomb and let the entire region burn to the ground—together with the entire world economy—than to give away their control over world oil trade.

But let’s assume we get through the coming weeks and months without the total destruction of West Asia. However, there will be a lot of ifs still, even if Iran gradually gets what it wants. For starters, in order to restart shipments, security must be guaranteed first and insurance provided soon thereafter. Who will do that? Next, will the European Union, Australia, South Korea, Japan etc. lift their sanctions so that they can pay the toll? What would the US do, should an allied country stop sanctioning Iran and pay a fee to the IRGC? Slap secondary sanctions on them? (Most likely yes.) And what about the thorny question of Israel’s invasion of Lebanon, aimed at removing the shiites there? How will that end? And we haven’t even begun to discuss the future of Gulf monarchies… Now you see why this war was far more easier to start than stop.

If the Balkans were a powder keg of Europe before WWI, West Asia is a bucket of thermite, which is almost impossible to extinguish once lit on fire.

Considering these realities, we might be able to get back up to 50% of the volumes shipped through the Strait in perhaps half a year (compared to the volumes transiting before the war) should the fighting somehow subside. And that’s the very best case scenario, and only for countries friendly to Iran. Western countries (including Japan, South Korea and Australia) will most likely remain deprived of shipments from the Gulf. Worst case, the strait will remains effectively closed for many months (years?) to come. Worst-worst case we might end up losing it all, for a very-very long time.

This is how a 90% decrease in shipments look like. Source: Lloyd’s List

And while the world keeps focusing on Trumps words and the kinetic front, the stratospheric rates for crude tankers in the Atlantic basin—carrying US oil products to Europe and Asia—paint a picture of a world scrambling for crude. You see, despite the rhetoric and the complacency of ‘oil markets’ the energy emergency is in full swing, as all the easy buffers are being used up. JP Morgan says the world is facing a “ticking time bomb” as physical shortages hit fresh regions one by one: first South Asia, then the Far East, then Europe and finally the Western Hemisphere, reflecting tanker travel days from Hormuz. As things stand today, all four corners of the world will be hit by the second half of April. Jet fuel prices have doubled and surpassed previous all-time-highs (recorded in 2022) already. Diesel fuel prices are through the roof in Europe. Singapore marine fuel imports have started to decline as arrivals from Kuwait began to evaporate—and that’s not good news if you were planning to visit the world’s largest bunkering (refueling) port as a ship owner. Should the situation continue to evolve into actual shortages, a massive decline in container and bulk trade between Asia and Africa / Europe would be all but guaranteed. As Declan Bush, senior reporter from Lloyd’s List, put it:

“The concept of hyper-efficient seaborne trade — all ships with access to all ports, all cargoes flowing to the highest-paying buyer regardless of nationality — is a relic of the past.”

The only question remaining is how splintered and inefficient seaborne trade will become and how severe physical fuel (and then all kinds of product) shortages will be, once refueling ships and cargo planes becomes increasingly impossible. Let’s not kid ourselves, this is not a mere supply shock—we are entering a war economy here. Globally. Calibrate your expectations according to that.

Until next time,

B

Thank you for reading The Honest Sorcerer. If you value this article or any others please share and consider a subscription, or perhaps buying a virtual coffee. At the same time allow me to express my eternal gratitude to those who already support my work — without you this site could not exist.

1. What if the ‘Houthis’ decide to close the Red Sea off—choking off the last remaining deliveries from Saudi Arabia—as they did in response to Israel’s actions in Gaza? Even as March flows through Bab El-Mandeb hit 4 million barrels a day as the Saudis ramped up exports via Yanbu, this lifeline, too, could also disappear in a minute, should the Houthis decide to close down the second choke-point in the region. And there is no way you can export that much through the much narrower Suez canal—there are simply not enough suezmax tankers to do that. See, bypassing Bab El-Mandeb would extends Middle East–East Asia voyages to ~50 days, more than doubling current transit times and essentially halving transit capacity. If the Red Sea is closed too, the giant Saudi fields will also suffer structural degradation.

2. While grain trade should rebound quickly once hostilities end, fertilizer markets will not. The 21% loss of urea traded worldwide simply cannot be made up from other sources. China and Russia has tightened their own fertilizer exports restrictions to protect their own markets. Major agricultural producers that typically source from China and Russia, rather than the Gulf, are being impacted too. But let’s not stop there with nitrogen: less sulfur from the Gulf means less production of phosphorus fertilizer from Morocco, which could in turn reduce the supply of phosphorus fertilizer to the entire Northern Hemisphere, including countries that do not source from the Gulf at all.

3. For now, all this is theory. In practice the Iranian transit model remains an exit scheme, and mostly for bulk (grain and other commodity) carriers. Except for Iranian tankers and some cargo ships very few new vessels have entered the Gulf since the war began.