The Energy Context:
Week in Focus

Not quite at zeitnot, but the clock is ticking. The Strait of Hormuz remains stuck in what Iran's foreign minister called "Project Deadlock," as the fallout of the biggest energy crisis in history accumulates. Several reflections have been highlighted of how much of an impossibility this used to be even in the most robust energy security scenarios of the past, and that's a big lesson about blind spots when it comes to anticipating the future in energy planning. The ceasefire was a hair away from blowing up, as President Trump's escort operation launched Monday, drew Iranian fire that set the UAE's Fujairah oil port ablaze, and was paused by Tuesday; then on Thursday three US destroyers were fired upon transiting the strait, and US forces struck Iranian military targets in response. The ceasefire still held pointing to just how challenging the situation is; no easy way out in either direction. Iran's response to the US one-page proposal arrived on Sunday. President Trump told Axios: "I don't like their letter. It's inappropriate. I don't like their response," without elaborating on the contents. Whether negotiations continue or military action resumes is now the open question, with the Trump-Xi summit in Beijing on May 14-15 adding a deadline.

Behind the lockin, ADNOC kept a trickle of crude and LNG moving by sailing tankers with transponders off, Iraq offered discounts of up to $33.40 per barrel to any buyer willing to enter the Gulf. Pakistan's week captured the volatility of expectations: an emergency LNG tender on Tuesday, then cancellation of all bids by Thursday after PM-level calls with Qatar and Iran, gambling that contracted Qatari cargoes would resume through the strait. The country has received one shipment since early March versus nine per month last year. Gulf producers are simultaneously racing to build alternatives to the strait. Saudi Arabia is promoting Neom's Red Sea port as a trade hub while its East-West pipeline runs at emergency maximum capacity of 7mn bpd. Abu Dhabi is expanding its pipeline to Fujairah; Iraq has announced pipeline plans to Turkey and the Red Sea. An FT editorial calculated that completing all planned links could lift bypass capacity from 40% to roughly two-thirds of pre-war flows, but no route is entirely secure.

The physical toll continues to compound. Global oil stockpiles fell by nearly 200mn barrels in April, the sharpest monthly drawdown on record, even as demand collapsed by 5mn barrels per day. US diesel stocks hit a 20-year low. Asia's jet fuel exports plunged to one-third of pre-war levels. A naphtha shortage forced petrochemical shutdowns in Indonesia, Japan and Taiwan, triggering a "plastic shock" now squeezing food packaging, medical supplies and consumer goods across the region. Airlines cut 2mn seats from May schedules as jet fuel costs doubled. The UAE's Fertiglobe is trucking fertiliser overland to ports outside the strait, running plants at full capacity because urea prices have nearly doubled, making the double-handling cost worthwhile. European gas traders began hedging for winter prices above €100 per megawatt-hour, more than double current levels.