Nesa identified Issues: Strait of Hormuz

4.4Summary of effects

Over the period from week 1 to week 23, there is no net shortage of supply to markets as the IEA coordinated stock release fully compensates for the loss of around 183 million barrels during the two week period of the disruption. The principal impact would be on the price of crude oil and products in the market over this period. Movements in the dated Brent crude oil price and in Australian average prices for diesel and petrol are shown in Figure for Case A and Figure for Case B.

Figure Movements in crude oil and product prices – Case A (low elasticities)

Source: ACIL Tasman

Figure Movements in crude oil and product prices – Case B (high elasticities)

Note: Crude oil is represented by the dated Brent benchmark price. Product prices are approximate Australian averages based on South Australian price movements.

Source: ACIL Tasman

The figures show the oil price rising in the weeks prior to the shock due to speculative buying and stock build followed by a peak in the first half of week 5 (the first week of closure of the Strait) and falling back in the second half of week 5 as speculative demand falls and stocks begin being released into the market to take advantage of the high prices. In week 6, the price in both cases falls again as IEA stocks plus 25 per cent of shipments through the Strait recommence.

Prices remain elevated in week 8 as IEA countries begin rebuilding stocks. This lasts for the remainder of the period to week 23. Prices fall back to the original price in week zero once the stock rebuild is concluded.