June 4, 2026 | The Energy Crunch Is Starting To Bite

Gas is more expensive since the Strait of Hormuz closed.

But life goes on. People are still driving, and oil prices, while up, are not spiking as they did in past energy crises.

One might be tempted to call this latest disruption a non-event.

But one would be wrong.

The impact on the broader economy has been muted so far because, when the war began, the world had plenty of oil. Most countries maintain some form of strategic petroleum reserve, while at any given time, a global fleet of oil tankers is en route to buyers.

Those reserves provided a buffer. But now they’re running out, leading to shortages in some places and soaring energy bills in others. Let this go on a little longer, and the dreaded “demand destruction” phase begins. According to the oil industry, that time is coming:

Supermajor Warns Oil Prices Could Hit $160 Within Weeks

(Oil Price) – Speaking at a Bernstein conference, Exxon SVP Neil Chapman said:

“Commercial inventories of crude oil, of liquids, think petroleum, gasoline, diesel, jet fuel, they’ve all run down. We’re approaching unheard of inventory levels. I mean, really, really low levels. You can debate whether that’s going to hit those really low levels in two weeks or three weeks. But once you get to that point, then you’ll see the price shoot up to $150, $160. And then demand destruction brings it back into balance. Prices go so high, it becomes unaffordable.”

The following video explains this process in more detail. Scroll down for a partial transcript:

Partial Transcript

One of the most misunderstood aspects of the current oil crisis is that the global economy does not need to literally run out of oil in order to suffer a catastrophic shock. The world’s energy system can fail long before inventories approach zero. What matters is not simply the total number of barrels sitting in storage somewhere, but whether enough oil remains available to keep the complex global circulation network functioning smoothly. A useful analogy would be the human body. A person does not die because every drop of blood disappears. The body actually fails when circulation can no longer sustain critical functions.

And so the global oil system operates in much the same way. Pipelines, storage terminals, refineries, tanker fleets, and distribution networks all require a minimum level of oil moving through the system at all times. If inventories fall too low, circulation breaks down and the energy system begins to seize up. This is why the recent developments in the Middle East are causing such concern among energy analysts.

Since February, global oil inventories have been falling rapidly as markets compensate for the loss of supply associated with the closure of the Strait of Hormuz. According to estimates from UBS, global inventory stood at more than 8 billion barrels at the end of February prior to the United States and Israel attack on Iran. By the end of April, they had fallen to approximately 7.8 billion barrels and by the end of May, they were expected to decline further to roughly 7.6 billion barrels. At first glance, these figures might appear reassuring.

After all, 7.6 6 billion barrels sounds like an enormous quantity of oil. The problem, however, is that most of these inventories are not truly available as a buffer against disruption. Analysts at JP Morgan estimate that only about 800 million barrels can be drawn down without placing significant stress on the system. The remaining inventory effectively serves as the oil equivalent of blood volume in the human body. It is absolutely necessary to have that to simply keep the infrastructure operating.

Once inventories fall below certain thresholds, transportation bottlenecks emerge, supply chains become increasingly fragile and fuel shortages begin appearing in unexpected places. The critical level that is identified by several JP Morgan analysts lies around 6.8 billion barrels of global inventory.

Below that level, transportation infrastructure could struggle to secure fuel supplies regardless of price. Airlines, trucking fleets, shipping companies, and industrial manufacturers would all face increasing difficulties obtaining the energy necessary to operate.

Now, markets have a mechanism that is designed to prevent that outcome before inventories become dangerously depleted. Prices rise sharply in order to destroy demand. And no, that is not good news for consumers. Effectively, prices will become so high, so restrictive that consumers would be unable to afford to travel as well as to purchase necessities. Higher energy prices force consumers and businesses alike to reduce consumption, slowing economic activity and preserving remaining inventories. In other words, the market effectively protects the physical energy system by sacrificing economic growth.

John Rubino June 4th, 2026

Posted In: John Rubino Substack

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