SoH Crisis Takeaways: Obliterating Peak Oil Demand, SoH Edition (EP221)

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We continue our SoH (Strait of Hormuz) Crisis Takeaways series with a check-in on our Obliterating Peak Oil Demand theme that rejects the idea that anyone can know today what decade let alone year oil demand will ultimately peak and subsequently plateau or decline. We have yet to see a scenario from major agencies, banks, or consultants that solves for everyone on Earth some day becoming energy rich, which, in our view, is the ultimate direction of travel. The massive unmet energy needs of the other 7 billion people on Earth points to growth in all current major energy sources and technologies. Energy’s natural hierarchy of needs points to a high motivation by especially billion-person-scale developing countries to crack the code on new energy technologies. How is there still any doubt that we will of course need rising amounts of both traditional and new energy sources and technologies for many, many decades to come?

There is some thought among energy observers that the SoH Crisis will accelerate the timing of “peak oil demand.” It is a view we reject. Even under our base-case of a messy stalemate between the U.S. and Iran and volatile oil flows out of the Strait, we are highly skeptical we could see the kind of sustained, large-scale substitution out of refined oil products into alternatives that would result in even a plateauing of global oil demand at global GDP rates of 2.7% or higher. In fact, growth in EVs (electric vehicles) and LNG (liquefied natural gas) trucks is likely helping economic resiliency in countries like China and others in southeast Asia during a time of SoH-driven stress and therefore keeping global GDP at better levels than might otherwise be the case. The ultimate driver of all forms of energy, including crude oil, is GDP growth. The biggest risk from the SoH Crisis was (or maybe still is) a deep global recession that would hit demand for oil and other energy sources in the short run.

The combination of the April 7 ceasefire and June 17 MOU—as imperfect as both agreements have been—significantly reduced worst-case “$200 oil / global recession” risks. There is also plenty of evidence that neither side is looking for the kind of prolonged full-scale ground war that could drive a more substantial and ongoing disruption of oil supplies out of the region. As such, we are s