The Wall Street Journal reports:

The chairman of oil producer DNO was flying from New York to Oslo early on Feb. 28 when he told staff to turn off the company’s oil wells in Iraq.

America and Israel had just attacked neighboring Iran. Bijan Mossavar-Rahmani wasn’t taking any chances, having weathered a drone strike on the company’s oil fields in Iraqi Kurdistan last summer. By the time he landed, the pumps had stopped—the first oil shutdown of the war.

To the south, another problem was brewing. An apparent recording of an Iranian naval captain telling ships not to enter the Strait of Hormuz spread through industry WhatsApp groups.

Tanker traffic slowed to a trickle. The doomsday some oil analysts believed could never happen was coming to pass. Unable to ship crude to world markets, much bigger producers in Iraq began to run out of places to put it. The country cut output by more than two-thirds. Tanks in Kuwait were next to fill up. U.S. oil prices vaulted above $100 a barrel Sunday for the first time since the fallout of Russia’s war on Ukraine.

“In the whole written history of the strait, it has never been closed, ever,” said JPMorgan Chase analyst Natasha Kaneva. “To me, it was not just the worst-case scenario. It was an unthinkable scenario.”

On Saturday, the Abu Dhabi National Oil Co. signaled it too was slowing production so tanks didn’t overflow. If the strait is still closed this Friday, daily output in the region could fall by more than four million barrels, Kaneva estimates. The decline could reach around nine million by the end of March, representing almost a 10th of global demand.

One week into President Trump’s war on Iran, the most severe shock to energy markets since the 1970s is cascading through the world economy. The disruption quickly fed into higher gasoline and diesel prices at the pump, and higher mortgage rates and borrowing costs for the U.S. government, endangering Trump’s economic priorities.

To be sure, the U.S. has more shock absorbers this time around. Oil is a far smaller component of gross domestic product than it once was, and the U.S. has become a top energy exporter in its own right.

Appearing Sunday on Fox, U.S. Energy Secretary Chris Wright said that “energy will flow soon” through the Strait of Hormuz. He blamed the rise in prices on “the unknown that this could be some long, you know, drawn-out crisis. But it won’t be.”

But the impact will still reverberate, especially in Europe and Asia. For decades, the U.S. military and its allies have spent billions of dollars ensuring the Strait of Hormuz stays open. Just 21 miles across at its narrowest stretch, and flanked to the northeast by a sworn enemy of the West, the channel between Oman and Iran is a superhighway for about a fifth of global supplies of oil and liquefied natural gas.

Massive amounts of fertilizer sail through these waters, feeding crops on every continent. The few ships that have left the strait since the start of the war were mostly carrying Iranian oil. Traders say crude markets could soar even higher if the strait doesn’t open within days, either with U.S. naval escorts or because shipowners think the danger has receded.

The strait’s closure is spilling through commodity markets. Aluminum prices hit multiyear highs after Middle Eastern smelters declared force majeure—a legal maneuver that means suppliers aren’t liable if they fail to deliver. Norsk Hydro, which is curtailing output in Qatar, said a full restart could take six to 12 months.

“We are looking at what is by far the biggest disruption in world history in terms of daily oil production,” said energy historian Daniel Yergin. “If it goes on for weeks, it will reverberate across the global economy.” [Continue reading…]

Axios reports:

Israel’s strikes on 30 Iranian fuel depots Saturday went far beyond what the U.S. expected when Israel notified it in advance, sparking the first significant disagreement between the allies since the war began eight days ago, according to a U.S. official, Israeli official and a source with knowledge.

Why it matters: The U.S. is concerned Israeli strikes on infrastructure that serves ordinary Iranians could backfire strategically, rallying Iranian society to support the regime and driving up oil prices. [Continue reading…]