Russell: It's time for the world to stop delusions about the Iran Energy Crisis.

By Clyde Russell

LAUNCESTON (Australia), April 7: The U.S.-Israeli war against Iran is characterized by miscalculations on the part of all parties involved, including those who are peripheral. But the real danger lies in the illusion about the magnitude of the energy crisis that will result.

Any nation that thinks it or another?country can emerge from this conflict as "winners" is delusional. The conflict has now entered its sixth week.

Even if there is a ceasefire in the next couple of weeks and vessel traffic resumes through the Strait?Hormuz, the energy crisis will still be a reality for the global economy.

To avoid making an already bad situation even worse, governments, corporations and customers must think clearly.

First, the delusion that reopening the Strait of Hormuz would solve current supply problems for crude oil and refined products as well as liquefied gas.

Second, the delusion that Donald Trump, the U.S. president, and his administration take rational decisions, and are aware of the economic damage they are causing to former allies from the Gulf, Europe, and Asia.

Third, the delusion that it's a crisis in crude oil prices when, in fact, there is an emergency with regards to supply, particularly for fuel-importing countries.

Fourth, you may think that your short-term self-interested policies will save your nation from the worst consequences.

China's decision to stop refined fuel exports will ensure its domestic supply. But if the country's?neighbours? in Asia are forced into a shutdown of much of their economies due to shortages, when will this impact China's export industries.

Some encouraging signs are that governments are beginning to recognize the severity of the crisis. Australia secured fuel imports from suppliers like Japan and Singapore, in exchange for commitments on coal and LNG.

The question is whether the world can cope with the loss of 12 million barrels of crude and refined product per day, or more than 10% of the daily demand.

Prices and demand fell during the COVID-19 Pandemic as people were prevented from traveling and buying goods. The current shock is a supply issue which has caused prices to rise, and physical products such as jet fuel in Singapore have more than doubled.

Two factors are a must.

1. The Strait of Hormuz is effectively closed for the majority of ships.

2. Negotiations to end the war and reopen the Strait have so far failed, and the rhetoric of the major players indicates that there is little hope for a breakthrough in the near future.

Trump used expletives on social media to say that Iran could be "taken out", if they don't reopen the Strait.

His threats to "rain hell" on Iran come after he appeared alongside a person dressed as an Easter Bunny at the White House at the weekend, where he talked about egg supplies and threatened to destroy Iran's power plants and bridges.

The current state of affairs is best summed up by an image of the President of the United States posing with a fictional children's character that represents a religious celebration celebrating eternal salvation, while simultaneously threatening another country.

The fact that Iran has rejected the ceasefire offers made by the United States is not surprising, considering the violence of Trump's threats and the obvious buildup of U.S. forces in the area, as well as his history of breaking agreements.

There are many risks to be aware of

There is still a risk that other facilities in the Gulf will be attacked or damaged.

Iran has managed to strike Qatar's LNG plants and gas-to liquids plants as well as refineries, infrastructure and the United Arab Emirates Kuwait Bahrain and Saudi Arabia.

Most ship owners are not willing to risk passing through the Strait of Hormuz. The few that do are doing so after Iran's approval and payment of a toll.

Trump is left with three options.

1. Then walk away. He is trying to make the conflict look like a victory.

2. If you escalate the conflict, there is a risk of a long-term conflict that will cause massive damage to the Gulf's energy infrastructure. This could lead to severe energy crises and recessions around the world.

3. Accept a ceasefire, and a settlement that is likely to be more favorable to Iran than the situation prior to the beginning of the conflict.

It is unlikely that the third option will have the least impact on the global economy, but given the statements and actions made by the parties involved, it appears to be the least likely.

It is not possible to reduce global crude and refined product demand by 10% at one time.

The poorer countries of Asia and Africa are the hardest hit, as they struggle both to source and pay for refined product.

Instead of turning inwards, all governments should work together to resolve the crisis.

They must understand the gravity of their situation.

The U.S. government and its president seem to be disconnected from reality, and they are now acting in a way that is detrimental to traditional allies.

As refiners struggle to find crude, the main impact of the crisis will be felt by May.

Second-round effects, such as increased inflation, reduced global trade, job loss and social unrest, are likely to appear in the second half year.

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These are the views of a columnist who writes for The Observer. (Editing by Jamie Freed)

(source: Reuters)