ING’s Warren Patterson revises the base case scenario for global energy markets, abandoning the earlier assumption of a quick two-week disruption in the Strait of Hormuz. The modern scenarios extend severe disruption into behind schedule March or later, with only gradual normalization in the second and third quarters.

Reworked scenarios raise the risk of disruption

“At the beginning of the war, our base case assumed a two-week full disruption of energy flows through the Strait of Hormuz, followed by a gradual recovery over the remainder of March, leading to near-normal flows in April. This was far too optimistic, given that we are now in the third week of the conflict with no signs of resumption of energy flows. We have therefore given our scenarios, as well as the base case, a lot of thought.”

“In our new Scenario 1, which is our baseline, we assume that flows through the Strait of Hormuz will remain cut off until the end of March, which corresponds with the view that intense fighting between the US-Israel and Iran will continue until the end of the month. This is followed by lower-intensity attacks, along with more signs of diplomacy that begin to allow energy flows to gradually recover in the second quarter.”

“During this time, upstream production, refineries and LNG facilities will slowly begin to ramp up as storage constraints ease. However, it will not be until the beginning of the third quarter that we will see a return to near-normal flows. It is assumed that available pipeline capacity will continue to be used to transship some of the crude oil bypassing the Strait of Hormuz.”

“Our new scenario 2 is our most optimistic scenario, in which we assume that energy flows through the Strait of Hormuz will remain almost completely disrupted until the end of March and gradually improve in April. This would allow supplies to return to near-normal levels by May.”

“Our new scenario 3 is our more aggressive scenario in which the intensity of war continues until April, followed by lower-grade confrontation for the foreseeable future, with little sign of diplomacy. Continued attacks on ships sailing in the Strait of Hormuz mean that energy flows remain disrupted for an extended period of time.”

(This article was created with the aid of an artificial intelligence tool and has been reviewed by an editor.)