International benchmark oil prices hover near $100 per barrel, masking a severe disruption in global physical crude flows emanating from the Strait of Hormuz. Energy Aspects estimates production losses have reached 13 million barrels a day, equating to 15% of world supply—a scale mirroring the demand destruction seen during the pandemic. This situation represents a supply-side shock, contrasting sharply with Covid-19's demand-led contraction.

Physical crude markets reveal the true stress, with Dated Brent trading over $140 before the ceasefire, pushing delivered cargoes into Asia to $150–$170 after shipping costs. This extreme cost disparity is squeezing refineries globally, causing product cracks—the difference between refined products and crude—to match 2022 highs. The premium paid for physical barrels over benchmarks is five times higher than normal, forcing production cuts.

American refiners face mounting competition as Asian buyers, prioritizing supply security, vacuum up Atlantic basin crudes. US exports to Asia are set to double to over 2 million b/d, drawing down inventories in the Gulf Coast region (PADD 3) to critically low levels by June. Policymakers risk an unappreciated domestic shortage if these transit disruptions persist.

Futures prices are providing a false sense of security to Washington, as the actual transaction prices paid by refining operations are already driving US retail gasoline and diesel prices upward. To prevent domestic shortfalls, US authorities may face the choice between allowing prices to rise further or implementing export restrictions, which could ironically lead to the shuttering of Gulf Coast production geared for export.