Chevron Chairman and CEO Mike Wirth said on Monday that physical shortages in oil supply would begin appearing around the world because of the closure of the Strait of Hormuz, through which 20% of global crude supply passes.
Economies will begin shrinking, first in Asia, as demand adjusts to reduced supply with the strait still closed because of the U.S.-Israeli war with Iran, Wirth said during a discussion sponsored by the Milken Institute. “We will start to see physical shortages,” Wirth said, noting that surplus supply in commercial markets, tankers in so-called shadow fleets avoiding sanctions, and national strategic reserves were being absorbed.
“Demand needs to move to meet supply,” he said. “Economies are going to have to slow.”
Asia is most heavily dependent on the Gulf’s oil production and refineries, with Europe likely to be affected next, Wirth said.
Wirth noted that the United States, a net exporter of crude, would be less affected than other parts of the globe, but eventually the effects would be felt there as well. He pointed out that the last scheduled shipment of oil from the Gulf was being offloaded at the Port of Long Beach, which supplies Los Angeles and southern California.
The overall effect of the Hormuz closure is “potentially as big as in the 1970s,” Wirth said. Two major supply disruptions in that decade shook economies around the world, leading to fuel rationing and long lines at retail pumps.
Because of the Hormuz closure, Spirit Airlines went out of business over the weekend as the cost of jet fuel surged amid tighter supplies.
(Reporting by Erwin Seba; Editing by Nia Williams and David Gaffen)