Unlike financial markets that can snap back quickly, physical energy markets require a prolonged recovery after a major disruption. Even with a ceasefire, it could take months for tanker routes to be secured, inventories rebuilt, and damaged refineries to return online, creating sustained price pressure.

Even a best-case combination of all available workarounds—rerouting pipelines, sanctions relief, and the fastest-ever strategic reserve release—would only mitigate 7 million of the 20 million barrels per day lost from a Hormuz closure. This leaves a practically unsolvable 13 million barrel per day shortfall.

The market assumes oil production can be quickly restored, but it's a highly complex engineering process. Many wells, such as those in Saudi Arabia, rely on water-flooding to maintain reservoir pressure. Shutting them down can cause unknown damage, making the restart process slow, uncertain, and technically challenging.

The oil market initially weathered a major supply shock due to buffers like high inventories and strategic petroleum reserve releases. However, these cushions are finite and depleting, which will soon expose the market to the harsh reality of a slow and complex supply recovery.

Financial markets are pricing oil as if supply will quickly rebound from disruption. However, the physical reality involves complex, time-consuming logistical hurdles like repositioning tankers, clearing shipping lanes, and restarting wells, which will significantly delay a full recovery.

Despite government actions like tapping strategic reserves and using alternate pipelines, these measures can only offset about 9 million barrels per day of the 20 million lost from the Strait of Hormuz. This leaves a massive 11 million barrel per day shortfall, dwarfing previous supply shocks.

A rapid rebound in Venezuelan oil production is improbable, even with massive investment. The effort is constrained by fundamental infrastructure failures, like a deeply unreliable national power grid, which is essential for running upgraders and refineries. This makes a quick recovery lasting years, not months.

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.

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.