Is it too soon to short energy? Here might be why

Most of the commentary on the energy crisis since February 28 has focused on the immediate shock — oil surging past $100, the Strait of Hormuz locked down, tanker traffic reduced to a fraction of its pre-war volume. These are real and serious disruptions trading insights. 

While these events are worth following, this focus has led to a widespread belief among traders that an agreement and an end to the Strait’s closure would mean an end to the energy crisis. The facts, and many numbers, say quite the opposite. However, the energy outlook is one of the most uncertain. In the next 12-18 months, oil and gas will be under the influence of so many forces pulling in different directions. 

The case for higher energy prices

The cushion shock

On March 11, the International Energy Agency (IEA) coordinated the largest release of emergency oil stockpiles in its 50-year history — 400 million barrels across 32 member nations. The United States alone committed 172 million barrels from the Strategic Petroleum Reserve, which held approximately 415 million barrels going into the crisis.

That release is now well underway. At the U.S. drawdown rate of roughly 1.4 million barrels per day, the American contribution will be exhausted within its 120-day window — around mid-July 2026. Once complete, the SPR will fall to approximately 243 million barrels, its lowest level since 1982.

The global picture is no better. The 400 million barrels released by IEA members represent roughly a third of the 1.2 billion barrels these countries held in government-controlled reserves. Even measured against normal Strait of Hormuz throughput — around 20 million barrels per day — the entire release covers only 20 days of typical flows. 

This "stop-gap measure", as the IEA itself described it, will probably add to the demand later, and thus support an over-buying sentiment. The US release is structured as an exchange, meaning companies must return the borrowed crude — with an 18% to 22% premium — between November 2026 and September 2028. The Department of Energy projects roughly 200 million barrels will be returned under these terms. But the SPR can only be refilled at a maximum rate of 785,000 barrels per day — roughly six times slower than it can be drained. Analysts at S&P Global and RBN Energy estimate the reserve will not recover to its pre-crisis level until approximately mid-2028.

This creates a paradox. The world used its emergency cushion to buy time. But replenishing that cushion requires purchasing large volumes of crude on the open market at whatever price the market sets when the buying begins. Given how quickly the energy shortage materialised, many energy-anxious economies will keep the high demand for a while.

Less energy behind the gate

Even if the Strait of Hormuz reopened tomorrow, the region's energy output would not snap back to pre-war levels. Six weeks of drone strikes, missile attacks, and retaliatory campaigns have left a trail of physical damage across the Gulf's most critical energy infrastructure.

In Saudi Arabia, attacks reduced production at Manifa and Khurais by 600,000 barrels per day. Strikes on the East-West pipeline and the Ras Tanura processing plant further crippled capacity. Infrastructure across the GCC also suffered, with Bahrain's Bapco refinery declaring force majeure and Kuwaiti facilities being struck repeatedly. Qatar’s Ras Laffan, a global LNG hub, saw a 20% supply drop after missile hits.

While some of these were recovered to full capacity, refineries and oil fields are not software that can be patched remotely. Even facilities that were shut down as precautionary measures can’t get back up the next morning. 

For example, Qatar's Ras Laffan, the world's largest liquefied natural gas (LNG) refinery, will need estimated repairs that take three to five years, as per QatarEnergy’s CEO, Saad Al Kaabi.

With Iranian oil now blockaded by the US Navy, and will probably be for a while, the buyers who previously depended on Tehran's 1.7 million barrels per day of exports — primarily in China and parts of Asia — will compete for alternative supply in an already constrained market.

The case for lower prices

Demand destruction is already happening

The most reliable brake on high oil prices has always been economic gravity. When energy becomes expensive enough, people and businesses use less of it. That process has already begun.

The IEA's latest report projects global oil demand will fall by 80,000 barrels per day in 2026 — a dramatic reversal from the 640,000 barrels per day of growth it had forecast before the war. The second quarter alone is expected to see demand contract by 1.5 million barrels per day, the steepest quarterly drop since the early months of the Covid-19 pandemic.

The International Monetary Fund has cut global growth forecasts accordingly. The Dallas Federal Reserve estimates that the Hormuz closure alone could shave 2.9%age points off global GDP growth in the second quarter. Ken Griffin, CEO of Citadel, stated plainly that a sustained closure of the strait for six to twelve months would push the world into recession.

While a recession scenario is still in the ‘unlikely’ zone, being on the brink of a recession doesn’t help energy demand. Consumer confidence in the United States has already hit record lows. Airlines are cutting capacity — Delta has announced it will "meaningfully reduce" near-term growth plans due to rising jet fuel costs. Middle Eastern aviation, responsible for 540,000 barrels per day of jet fuel demand, has seen flight cancellations approach 100% at some regional airports. The IEA expects regional jet fuel demand to fall by 50% in March and 30% in April.

If the war drags on, or if the economic damage deepens, falling demand could offset some of the supply constraints. Markets do not stay irrational indefinitely. They adjust. The question is whether the adjustment happens fast enough to matter.

The accelerator effect on clean energy

Every major oil shock in modern history has nudged the world toward alternatives. But previous crises lacked something this one has: competitive renewable technology at scale.

Renewable power accounted for 85.6% of all new global energy capacity installed in 2025, according to the International Renewable Energy Agency. Solar costs have fallen so far that what was once a policy aspiration is now a commercial reality in most markets. The IEA's executive director, Fatih Birol, expects the crisis will accelerate investment in renewables — not primarily for environmental reasons, but because domestically produced clean energy is immune to the kind of chokepoint vulnerability the Hormuz crisis has exposed.

The signals are already appearing. The European Commission has backed a new strategy with over €75 billion in financing to accelerate clean energy investment. Vietnam's Vingroup has proposed scrapping a planned LNG import project in favor of renewables and batteries. Taiwan has applied to restart a nuclear reactor it shut down last year. South Korea is accelerating the restart of several reactors. Pakistan's rapid build-out of distributed solar has buffered its power sector from gas supply disruptions and avoided an estimated $12 billion in oil and gas imports before the war even began.

Analysts at Ember, an energy think tank, have called this "Asia's Ukraine moment" — a reference to how the 2022 war pushed Europe to cut its gas dependency. The difference, they argue, is that the technology available today is cheaper and more mature than what Europe had to work with four years ago.

This matters for the longer-term oil price trajectory. If the crisis accelerates the structural decline in fossil fuel demand — particularly in Asia, where most of the growth was expected — the floor under oil prices could weaken even as short-term supply remains tight.

The sanctions wildcard

There is a scenario, however unlikely it appears today, in which geopolitical resolution brings additional supply back online rather than removing it. A negotiated end to the conflict — or even a partial easing of tensions — could lead to a loosening of sanctions on Iranian — and even Russian — oil exports.

Before the war, Iran was exporting roughly 1.7 million barrels per day, mostly to China, often at steep discounts through sanctions-evading channels. A formal diplomatic resolution could bring some of that oil back into transparent markets at undiscounted prices, adding meaningful volume to global supply.

More broadly, any credible path to reopening the Strait of Hormuz would release pent-up supply from producers across the Gulf who have been unable to export — or have had their output curtailed by infrastructure damage. The market demonstrated just how sensitive it is to diplomatic signals when oil prices fell nearly 8% in a single session after the White House hinted that further talks with Iran were possible.

So… what to watch market analysis

The energy crisis has two timelines. The first is the one markets are trading on right now — ceasefire negotiations, blockade developments, and weekly inventory reports. This timeline is noisy and produces the kind of volatility that saw WTI swing between $91 and $104 in the space of a few days.

The second timeline is structural. It includes the pace of infrastructure repair across the Gulf, the rate at which strategic reserves are drawn down and eventually replenished, the speed of the clean energy pivot in import-dependent Asian economies, and the trajectory of global demand as higher energy costs work their way through the real economy.

Most traders are glued to the first timeline — refreshing feeds for the next presidential statement, the next ceasefire rumour, the next satellite image of a tanker approaching the strait. That instinct is understandable. But the signals that will shape energy prices over the next twelve months are not all coming from the Middle East or the White House.

Watch manufacturing PMIs in China and Europe; if factory activity contracts, it could signal demand destruction. Also, monitor airline capacity and EIA inventory reports—the market will react before the strategic buffer is fully exhausted.

Follow Saudi Aramco’s infrastructure updates and China’s import data to gauge true global supply and whether nations are competing for alternative crude sources.

Finally, watch the clean energy pipeline. New solar, wind, and nuclear projects are critical demand signals that indicate where the long-term structural floor for oil prices sits. Rather than rushing to conclusions or taking a short position on energy, remember it's more complicated than a trend-reversing headline.