Oil is trading at $98 West Texas Intermediate and $110 Brent despite a cascade of supply shocks that, taken together, would have prompted most energy analysts to price crude well above $150 just six months ago. Venezuela's president has been arrested and extradited to New York, the United States has imposed an embargo on Cuba, a hot war with Iran has closed the Strait of Hormuz and sunk tankers, and Iranian missiles have destroyed two liquefied natural gas trains at Qatar's Ras Laffan complex - taking roughly 17 percent of Qatari production capacity offline for an estimated five years.
The puzzle, "Hvylya" reports citing Decouple analysis, is that the relative calm in price action has structural explanations that deserve attention. Oil's share of global primary energy has fallen from around 50 percent at the time of the 1973 Arab oil embargo to roughly 35 percent today, meaning a given volume disruption transmits less shock into the broader economy than it once did.
The actual supply disruption through the Strait of Hormuz currently amounts to eight to 10 million barrels per day rather than the theoretical maximum of 20 million. China alone holds 1.5 billion barrels of strategic reserve - enough to absorb five million barrels per day of that shortfall for 300 days if deployed at scale. None of this makes the crisis trivial, but it helps explain why markets have not behaved the way historical pattern recognition suggested they would.
Doomberg holds as an axiom that supply shocks reliably produce the investment responses that eventually create gluts. The 1973 embargo produced the North Sea, France's Messmer Plan, and the International Energy Agency strategic reserve system. The 2008 financial crisis and $147 nominal crude produced the capital that drove the U.S. shale revolution to commercial viability. Something analogous will emerge from the current crisis, though its precise shape remains unclear. Whether Europe will contribute is an open question.
The pain, meanwhile, is real and unevenly distributed. Europe's hydrocarbon import dependency now sits at 80 percent, up from 30 percent in 1995. The shock will test whether the continent is willing to reckon with three decades of decisions that left it structurally exposed.
"Hvylya" previously reported on why most of the world's seaborne crude depends on just eight narrow passages where backup routes barely exist.