For every day the war in the Middle East drags on, the crisis in energy markets deepens. The price of everything from gas and oil to jet fuel and plastics is rising sharply.

That crisis is set to get dramatically worse over the next week or two.

Energy shipments stopped in their tracks on February 28 when the war began and Iran effectively closed the Strait of Hormuz. But plenty of ships made it out to sea in those final days before the conflict began. The last of them should arrive in Japanese and Korean ports sometime over the next 8-10 days.

After that, there’s nothing coming.

“You have this massive air pocket. At this stage, we’re looking at probably somewhere around a half a billion barrels of what would normally be flowing out of Hormuz that has now not been flowing,” said Rory Johnston, founder of Commodity Context.

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In the oil industry there’s a difference between what people call paper oil and physical oil.

Right now there’s a shortage in paper oil, which are contracts. It represents oil that can be shipped, as opposed to being an actual barrel travelling on a ship.

But as soon as the actual, final shipments of oil out of the Strait arrive at their destinations, the shortage moves from the paper world into the real, physical world.

When that happens there will be a lack of tangible oil to actually power things.

Governments around the world have agreed to release 400 million barrels of oil from strategic reserves. The United States has waived some sanctions on refiners in Iran and Russia to help deal with the supply shock.

Japan’s vice minister for international affairs, Takehiko Matsuo has said that’s still not nearly enough to fix supply issues.

He told Reuters that Japan has roughly three weeks of gas in storage.

Meanwhile, natural gas futures prices — contracts that reflect what traders expect gas to cost in the weeks and months ahead — have soared even more than oil since the war started. Asian benchmark JKM futures are up 90 per cent.

“The volumes of gas unable to transit through the Strait of Hormuz are huge: around 120 billion cubic metres,” said Bridget Payne, head of energy forecasting at Oxford Economics, a global economic research firm.

For comparison, when Russia launched its full-scale invasion of Ukraine in 2022, about 80 billion cubic metres of gas exports were lost — a disruption that drove gas prices up roughly 250 per cent year over year in the second quarter of 2022.

Payne said that will be felt in some countries more than others.

“This will be of particular concern in economies like Taiwan that rely on natural gas to power their industrial sectors, or Pakistan, which is almost completely dependent on Qatar for its LNG imports,” she wrote in a note to clients.

Pakistan is already experiencing physical shortages as it’s closer to the region and its last ships arrived over the past week or so. The country has imposed a four-day work week for government employees. It closed schools for two weeks. All in an effort to save energy.

The problem is compounded by two key factors. The first is that no one knows when the Strait of Hormuz may see even remotely normal shipments again.

The other is that, once that happens, it will take a long time to refill that air bubble in the system.

“Oil only travels at the speed of a tanker,” said Johnston.

And tankers move slowly. Even if Hormuz became passable tomorrow, it would take weeks before those ships started showing up at ports around the world.

Oxford Economics expects the Strait of Hormuz to remain impassable until May. It expects to see “elevated geopolitical tensions” continuing to disrupt trade through the end of September.

That means the air bubble is orders of magnitude larger than the one we have today and the actual shortage of energy products in select countries is drawn out for months, not days or weeks.

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Meanwhile, oil industry executives and policymakers are meeting in Houston for the annual CERAWeek conference, often described as the energy sector’s version of Davos.

Oil analysts like Karim Fawaz, director of energy advisory at S&P Global, have reported on what they describe as “irrational optimism” among people in the industry right now. 

“The alternative is so daunting to think about, with consequences so grave, that many are choosing optimism even without a solid foundation,” he posted to X on Wednesday.

Johnston is hearing the same thing.

“You’re seeing a lot of comments from the executives basically being like, this is basically cataclysmic. But, it’s so bad that it’s not going to last, right?” he said.

The problem is that the disruption has already lasted longer than many expected, with few clear paths to end the war and quickly restore oil flows.