The Energy Supply Cliff is Alarmingly Near

9 Jun 2026 12:38 PM

With the Strait of Hormuz closed, national oil reserves have been steadily depleting, and will empty by the end of the summer, halting most economic activity, globally.

Ahead of us is an energy supply cliff; that is when oil runs out. It does not just mean the oil price rises again, which is an inflation problem. It is when there is not enough oil. Oil is hard-wired to economic output. When oil is in short supply, output stops. It does not just get more expensive.

Time to the Energy Supply Cliff

Picture the difference like this. Right now, when you drive up to the pump, petrol or diesel costs more; that is how the market rations scarcity. What lies in wait is when you get to the pump, and it is empty. There is no oil to ration.

That has significance for both the economy and geopolitics.

The reasoning that follows is based on known quantities and simple extrapolations. It is not the fruit of vision but arithmetic.

The amount of oil missing from the Middle East (ME) is 12 million barrels per day (bpd). How is this arrived at? Total ME annual pre-war (Feb 28) output was 25 million bpd. The oft-quoted 20 million bpd figure only covers crude oil exports from the ME. It misses out on refined product, bunker fuel and other leakages. To get from ME 25 million gross output potential to the 12 million bpd daily supply deficit today, we adjust for ME crude that is still flowing, such as through pipeline (the Yanbu pipeline in Saudi Arabia and the Fujairah one in the United Arab Emirates) and add back new supply from elsewhere. Your author also incorporates a reduction in demand for oil of 2.5% of global consumption to allow for the effect of demand destruction due to existing higher prices. This all reduces the supply shortfall. So, this analysis will go with the 12 million bpd supply shortfall. This supply shortfall is reconcilable with the movement of oil inventories published by the IEA; it is not a figure drawn out of a mad hatter’s hat!

The next job is to apply that supply shortfall to inventories in order to see when they run out. More realistically, because no one uses ‘crude’, when do inventories reach a critical floor beyond which normal refinery output cannot be ensured?

Click here for the full press release