Oil Markets Brace for Supply Crunch as Hormuz Crisis Deepens

Chevron Chairman and CEO Mike Wirth said on Monday that physical shortages in oil supply would begin appearing around the world because of the closure of the Strait of Hormuz, through which 20% of global crude supply passes , according to GV Wire. It's a stark warning from one of the world's largest oil companies, and it signals that the energy crisis triggered by the U.S.-Israeli war with Iran is entering a new, more dangerous phase.

Economies will begin shrinking, first in Asia, as demand adjusts to reduced supply with the strait still closed, Wirth said during a discussion sponsored by the Milken Institute. "We will start to see physical shortages," Wirth said, noting that surplus supply in commercial markets, tankers in so-called shadow fleets avoiding sanctions, and national strategic reserves were being absorbed . According to market data, WTI crude traded at $71.50 per barrel on May 5, up 0.6%, while Brent crude stood at $75.20, up 0.5%.

The overall effect of the Hormuz closure is "potentially as big as in the 1970s," Wirth said. Two major supply disruptions in that decade shook economies around the world, leading to fuel rationing and long lines at retail pumps . Bloomberg reported that every day the Strait of Hormuz remains shut, the world is using up commercial stockpiles, strategic reserves and crude that was stored in vessels. These supplies are now running short, Chevron Chief Financial Officer Eimear Bonner said in an interview with Bloomberg TV on Friday .

U.S. Shale Responds to Price Signal

While Big Oil warns of shortages, at least one major U.S. producer is stepping up. Diamondback Energy Inc., one of the biggest shale oil producers, is boosting crude output in response to rising prices caused by the Iran war. The company that operates in the Permian Basin of West Texas and New Mexico is pumping more than 520,000 barrels a day, 3% more than its original full-year guidance, and plans to sustain those levels , Bloomberg reported.

Reuters reported that Diamondback is increasing annual oil production guidance to 520+ (from 500 - 510) MBO/d and total BOE production to 972+ (from 926 - 962) MBOE/d; implying ~5% organic year-over-year growth . The company is also raising full year cash capital expenditures to ~$3.90 billion (from ~$3.75 billion) .

Since Diamondback's last stockholder letter just 70 days ago, the oil market has completely flipped from a projected supply-demand surplus to a historic global deficit. Because of our positioning, our preparation and this price signal, we are bringing incremental barrels to the market immediately. We have made the decision to begin to work down our drilled but uncompleted well ("DUC") balance to maintain our current production level of over 520,000 Bo/d - up 3% from our original 2026 guidance , the company said in a letter to shareholders.

But the broader U.S. shale industry remains cautious. OilPrice.com reported that Big Oil is signaling it has no plans to rearrange its priorities. Higher oil prices drove the first-quarter adjusted earnings at Exxon above analyst estimates as the jump in prices more than offset lower oil and gas production in the Middle East and Kazakhstan . The industry's reluctance to dramatically increase production reflects lessons learned from the last boom-and-bust cycle.

UAE Doubles Down Post-OPEC

Just days after formally exiting OPEC on May 1, the United Arab Emirates is making its intentions clear. Abu Dhabi National Oil Company (ADNOC) has outlined plans to award up to $55 billion in projects between 2026 and 2028, signaling an acceleration of upstream and broader energy investment as the UAE charts its path following its exit from OPEC. The planned awards form part of ADNOC's existing five-year capital expenditure program and mark what the company described as a new phase of large-scale project execution aimed at meeting rising global energy demand , World Oil reported.

Al Jazeera reported that the United Arab Emirates announced its decision to quit OPEC and OPEC+ to focus on "national interests", dealing a heavy blow to the oil-exporting groups at a time when the US-Israel war on Iran has caused a historic energy shock and rattled the global economy. The move, which took effect on Friday, reflects "the UAE's long-term strategic and economic vision and evolving energy profile" .

The timing is significant. Experts say the UAE's departure from the cartel is unlikely to have an immediate impact on the market because the UAE's exports, like those of all its neighbouring countries, are currently constrained by Iran's control of the Strait of Hormuz , according to Al Jazeera. But should traffic return to pre-war levels, the UAE could potentially flood the market with its 1.6 million bpd of extra production – equivalent to about 1.5 percent of global oil supply – enough to give it a serious edge in the global energy market .

The Hormuz Standoff Continues

The geopolitical backdrop remains tense. According to Wikipedia's coverage of the crisis, shipping traffic through the Strait of Hormuz, a major maritime choke point for world energy trade, has been largely blocked by Iran since 28 February 2026, when the United States and Israel launched an air war against Iran .

Time Magazine reported that President Donald Trump announced plans to "guide" hundreds of stranded ships out of the Strait of Hormuz, which has been effectively under Iranian control since the U.S. and Israel launched the war against Iran in late February. Trump's plan, dubbed "Project Freedom," was set to begin on Monday morning in the Middle East . However, Iran has said any American interference in the Strait will be considered a cease-fire violation .

CNN reported that before the United States and Israel launched their attacks on Iran in late February about 3,000 vessels typically passed through the Strait of Hormuz each month. Oil tankers passing through accounted for an estimated 15 million barrels per day of crude and other oil product exports, data from the analytics firm Kpler shows, amounting to about one-fifth of the world's oil trade. But since the war began, traffic has been reduced to a trickle, with just 154 vessels recorded crossing in the entire month of March .

Natural Gas Markets Show Resilience

While oil grabs headlines, natural gas markets are showing some signs of stabilization. Natural Gas Intel reported that around 20% of global petroleum and 20% of liquified natural gas traverses the strait each year . According to market data, Henry Hub natural gas traded at $3.25/MMBtu on May 5, down 2.4%.

Reuters reported that Williams beats quarterly profit estimates on higher natural gas demand , suggesting that domestic U.S. gas infrastructure companies are benefiting from the global energy disruption as buyers seek alternatives to Middle Eastern supplies.

The energy landscape is shifting rapidly. With Chevron warning of imminent physical shortages, U.S. shale producers cautiously increasing output, and the UAE positioning itself for a post-OPEC future, the coming months will test whether global markets can adapt to a world where one-fifth of oil supplies remain trapped behind a geopolitical chokepoint.