Even a brief closure of the Strait of Hormuz has immediate, lasting effects. Shutting in millions of barrels of oil and LNG damages production facilities, which can take over 60 days to bring back online, ensuring a recession even if the conflict ends quickly.

An energy crisis has two key factors: the size of the disruption and its length. Market buffers like strategic reserves can cushion the initial shock, but a prolonged crisis exhausts these buffers and leads to extreme price increases, which haven't happened yet.

Re-establishing normal energy flows is not like flipping a switch. It can take months to recover even if a conflict ends quickly. Furthermore, if infrastructure like LNG plants or oil wells is damaged, the supply reduction and economic pain can last for years.

Unlike oil, restarting liquefied natural gas (LNG) production is a slow, complex process. The need to cool liquefaction trains from high ambient temperatures to -160°C requires significant time, delaying the return of supply to the market long after a crisis is resolved.

The Iran crisis has caused the largest physical logistics disruption in the history of the modern oil market. However, it has not led to the largest price dislocation. This disconnect highlights the market's initial belief that the disruption would be short-lived, a view that is now being tested.

The impact of an oil supply disruption on price is a convex function of its duration. A short-term closure results in delayed deliveries with minimal price effect, while a prolonged one exhausts storage and requires triple-digit prices to force demand destruction and rebalance the market.

The market's complacency about the Iran crisis stems from misunderstanding physical oil logistics. The last tankers from Hormuz are just now arriving. The actual supply disruption hasn't begun, setting up a "Wile E. Coyote moment" where markets realize the damage far too late.

Even if a major supply disruption is resolved quickly, the system does not instantly recover. Delayed shipments and depleted inventories create a systemic "air pocket" that keeps prices elevated for several quarters as the complex supply chain slowly renormalizes, a crucial lag often overlooked in initial forecasts.

During the Hormuz crisis, futures markets anticipated a quick resolution, keeping prices muted. In contrast, physical market participants faced severe logistical dislocations, leading them to believe risk was significantly underpriced. This highlights a fundamental disconnect between financial speculation and operational reality.