The biggest risk would be if the US restricted oil exports in order to protect domestic consumers. The US is now the world’s largest oil producer, producing more than 20 million barrels per day of oil and petroleum liquids. But it is also one of the world’s largest consumers. However, it still exports significant volumes, particularly to Europe.
The US has banned oil exports before. In 1975, following the Arab oil embargo (when in 1973 Arab states refused to supply oil to countries, including the US, that had supported Israel in the Yom Kippur war), the US banned exports of crude oil. The ban was lifted only in 2015. If such a ban were introduced today, it would be likely to cause major supply shortages and price increases, especially in Europe.
If the Strait of Hormuz remains closed for a prolonged period, or if the conflict escalates further, global losses of exports from the Persian Gulf could approach the 20 million barrels per day of oil and petroleum products.
Under these circumstances, the economic and social effects could be severe. Transport could become more expensive and less frequent, air travel would be severely curtailed, inflation would rise and economic growth would slow significantly. In extreme scenarios, the disruption to daily economic life could resemble the COVID-19 period (and probably worse). But this time it would be caused by a shortage of energy.
For now, markets are relying on emergency stock releases and hopes of a geopolitical de-escalation. But if not, the world economy could face an unprecedented energy shock, with far-reaching and unpredictable consequences.
Adi Imsirovic is Lecturer in Energy Systems at the University of Oxford. This commentary first appeared on The Conversation.