Chevron CEO Mike Wirth warned Monday that physical oil shortages will begin appearing globally due to the Strait of Hormuz closure, with Asian economies first to shrink as supply buffers are exhausted.

Summary:

• Chevron Chairman and CEO Mike Wirth said physical shortages in oil supply would begin appearing around the world as a result of the Strait of Hormuz closure, through which 20% of global crude supply passes, per his remarks at a Milken Institute discussion reported by Reuters
• Wirth said economies will begin shrinking, with Asia affected first given its heavy dependence on Gulf oil production and refineries, followed by Europe, according to Reuters
• The Chevron chief said surplus commercial stocks, shadow fleet tankers and national strategic reserves were all being absorbed, removing the cushions that had so far softened the supply impact, per Reuters
• Wirth described the overall effect of the Hormuz closure as potentially as large as the supply disruptions of the 1970s, which caused fuel rationing and prolonged queues at retail pumps across major economies, according to Reuters
• The United States, as a net crude exporter, would be less exposed than other regions but would ultimately feel the effects, with the last scheduled Gulf oil shipment being offloaded at the Port of Long Beach at the time of Wirth’s remarks, per Reuters

Chevron Chairman and Chief Executive Mike Wirth delivered one of the starkest assessments yet of the Strait of Hormuz crisis on Monday, warning that physical oil shortages are now imminent, that economies will begin contracting in response, and that the scale of disruption could rival the oil shocks of the 1970s that reshaped the global economy for a decade.

Speaking at a Milken Institute event, Wirth said the closure of the strait, through which roughly 20% of the world’s seaborne crude supply passes, has progressed to the point where the supply buffers that initially absorbed the shock are running out. Surplus stocks in commercial markets, tankers operating in shadow fleets to avoid sanctions, and national strategic petroleum reserves are all being drawn down, he said. Once those cushions are exhausted, the gap between available supply and demand must be closed by a different mechanism: economic contraction.

Asia will bear the earliest and heaviest impact. The region is the most heavily dependent on Gulf crude production and refinery output, and Wirth said its economies will be the first to shrink as demand is forced to adjust downward to meet constrained supply. Europe faces the next wave of exposure. The sequencing reflects the geography of Gulf oil dependency rather than any policy choice, and it leaves the world’s fastest-growing economic region in the most vulnerable position.

The United States, as a net exporter of crude, occupies a more protected position than its allies and trading partners. Wirth was careful to note, however, that protection is relative and temporary. The last scheduled shipment of oil from the Gulf was being offloaded at the Port of Long Beach at the time of his remarks, serving the Los Angeles basin and southern California. That moment, unremarkable in normal times, marks a concrete inflection point: the point at which even the US begins to absorb the closure’s consequences in its own supply chain.

Wirth’s comparison to the 1970s oil shocks carries particular weight coming from a major operator with direct visibility into physical supply flows. Those disruptions, triggered by the 1973 Arab oil embargo and the 1979 Iranian revolution, produced fuel rationing, surging inflation, deep recessions and a fundamental reordering of energy policy across the developed world. The suggestion that the current crisis is potentially of equivalent magnitude places it in a category that financial markets, central banks and governments may not yet be fully pricing.