Don't be frightened by $80 oil prices; the real energy crisis may not have arrived yet.

Don't be frightened by $80 oil prices; the real energy crisis may not have arrived yet.

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Oil prices have surged sharply due to the war in Iran, putting the market on edge and setting off alarm bells of an "energy crisis." But Bloomberg columnist Javier Blas believes that such concerns are overblown—at least for now.

On March 6, Javier Blas pointed out in a Bloomberg Opinion column that the current energy market shock is limited in scope, has seen only moderate price increases, and has yet to last long; by comparison to true historic energy crises, it is still far off.

The article states, the U.S. military strike on Iran is bad news for the global economy, but he does not believe this shock will cause an inflation spike like that of 2022. Brent crude oil is currently hovering slightly above $80 per barrel; European natural gas is about €50 per megawatt-hour—which, while nearly doubled from a few days ago, is still worlds apart from the 2022 historical high of €350 per MWh.

It is noteworthy that this shock so far has only impacted two major commodities—oil and LNG—while coal, electricity, and the North American natural gas markets have not been visibly affected. Blas warns that the real risk to watch lies in refined oil prices—diesel and jet fuel prices have climbed much faster than crude oil itself. If the situation continues to worsen and spreads to a broader spectrum of energy products, only then might a true crisis take shape.

What Is a True Energy Crisis: Three Essential Elements

At the start of his article, Blas sets an analytical framework for the term "energy crisis." He believes that three core elements must be considered to determine if an energy crisis is present: which commodities are affected, the magnitude of price increase, and the duration of the price surge. Additionally, one should consider the initial price level and supply-demand fundamentals.

At the same time, Blas sees historical comparison as equally indispensable. The article notes,

When the 1973–1974 oil crisis broke out, oil was almost the sole source of energy, accounting for nearly 25% of global electricity generation; now, that figure has dropped to less than 3%.

For ordinary European households, the importance of power and natural gas now rivals or even surpasses that of oil; for service sector businesses, oil prices are almost irrelevant—electricity prices are what matter.

Blas points out that the reason 2021–2022 constituted a true crisis was exactly because oil, natural gas, coal, and electricity—the four major forms of 21st-century energy—all surged at the same time and stayed high for several quarters.

"Many people are still analyzing the energy market through the paradigm of another era," he writes.

Horizontal Comparison: Current Data Far from Crisis Thresholds

The article says that comparing current prices to historical crisis periods, Blas concludes: The energy market is performing 'quite well' at the moment.

Currently, Brent crude is just over $80 per barrel. After the Russia-Ukraine conflict broke out, oil prices once soared above $130 per barrel. European natural gas is about €50 per MWh, while the historical peak in 2022 was €350.

Germany's one-year forward wholesale electricity contract is now €88 per MWh, 91% lower than the all-time high of €985 per MWh, and below where it was four weeks ago.

For coal, the Asian benchmark price is about $130 per ton, while in 2022 it spiked to $440. As for U.S. natural gas, the Henry Hub benchmark is below $3 per million BTU, whereas in the 2008 commodity supercycle peak, it hit $14.

Blas emphasizes that the current shock from the Iran situation is so far limited to oil and LNG, and has yet to spread to the electricity or coal markets, nor affect the relatively independent natural gas markets of the U.S. and Canada.

Moreover, the starting point before the conflict was quite favorable—oil prices were low, and both the oil and LNG markets had oversupplied conditions this year. Some previously unsellable Iranian and Russian crude oil is now finding buyers, which to a degree acts as a buffer. For Europe, the timing is also advantageous: hydropower reservoirs are well stocked, and as spring arrives, solar generation will provide substantial supplementation.

Although Blas is not yet worried about crude oil prices, he specifically highlights a sector that merits close attention: the refined oil market.

He explains that only refineries purchase crude oil directly and bear its price fluctuations; in the real economy, consumers and businesses buy gasoline, diesel, jet fuel and other refined products—these are the prices that truly impact economic activity. Currently, diesel and jet fuel prices have increased much more rapidly than crude oil itself.

"If a true energy crisis emerges, its roots will be in these refined oil products," Blas writes.

Worst Case Scenario: Low Probability but Not to Be Ignored

However, Blas does not shy away from extreme risk scenarios. He admits his worst-case prediction regarding Gulf conflict impacts is more pessimistic than most analysts.

He sketches out a "possible but unlikely" nightmare scenario: The U.S. underestimates Iran's will to resist, the Strait of Hormuz is blockaded for three months; Iran, desperate for survival, bombs critical oil infrastructure in Saudi Arabia, Kuwait, and the UAE; these nations respond by destroying Iran's oil industry.

Under such a scenario, global daily supply losses might reach 20 million barrels, lasting a quarter, followed by another 10 million barrels lost over the next year. "If anyone thinks in such a scenario oil prices would stop at $100 per barrel, I have an oilfield to sell you," he writes.

Nevertheless, Blas points out that true historical energy crises have never been driven by a single event—they typically result from a combination of multiple factors.

In the 1973 crisis, it just so happened that U.S. oil production reached its peak while global demand growth was out of control; the 2022 crisis compounded with low French nuclear output, droughts that restricted hydro, Germany's panic buying, and poor hedging strategies at utilities, among other factors. So far, such compounding factors have not emerged—on the contrary, there are even offsetting effects.

At the end of the article, Blas concludes with a single line: "Stretch the price chart’s time axis back. Looking over the past decade, this week’s volatility doesn’t seem nearly as scary as it does at first glance."

Risk Warning and DisclaimerThe market carries risk; investments must be made cautiously. This article does not constitute individual investment advice and does not take into account any individual user's investment objectives, financial situation, or needs. Users should consider whether any opinions, views, or conclusions in this article apply to their own specific circumstances. Investment based on this is at your own risk. ```