We are about to price the oil and gas markets for absence rather than scarcity

In a recent appearance on Squawk Box Asia, veteran commodities strategist Jeff Currie (Co-Chairman of Abaxx Markets) delivered a stark warning that resonates deeply with current market dynamics. He described an emerging “rare earth moment” — a qualitative shift where markets have been neglecting the physical world (“atoms”) in favor of financial narratives and tech optimism (“bits”). Currie highlighted that a larger amount of GDP is now attached to each barrel of oil, amplifying the domino effect of physical disruptions. He urged traders to “sell the tweet, buy the molecule,” emphasizing that diplomatic headlines about potential U.S.-Iran deals are no substitute for actual physical supply.

This moment, he argued, marks a move from pricing scarcity (the fear of future tightness) to pricing absence (the real withdrawal of critical physical molecules from the system). A small missing component, like a battery in a car door, can halt entire production lines — an analogy for how physical commodity shortfalls can cascade far beyond their nominal GDP share.

This insight frames the current energy crisis triggered by the 2026 Iran conflict and the effective disruption of the Strait of Hormuz.

Paper vs. Physical: Lessons from Past Wars

Historically, oil markets have often priced geopolitical risk through paper markets (futures, options, and derivatives) more aggressively than physical supply chains initially warranted. Physical markets — involving actual barrels delivered for refining and consumption — are buffered by inventories, spare capacity, and logistics.1990–91 Gulf War (Iraq invades Kuwait): Oil prices roughly doubled (from ~$20–$40+/bbl range) on invasion fears and supply concerns. Futures markets spiked sharply on scarcity premiums. However, once the U.S.-led coalition succeeded and supply risks eased, prices fell quickly. Physical disruptions were mitigated by releases from strategic reserves and rapid restoration of flows. Paper led; physical followed but did not sustain extreme tightness long-term.
2003 Iraq War: Prices rose in the lead-up amid uncertainty but dropped or stabilized after the invasion began. Markets anticipated a swift resolution with limited long-term supply loss. Inventories and OPEC+ responses helped. Again, the war premium in paper markets proved front-loaded and reversible.
2022 Russia-Ukraine invasion and sanctions: Oil and especially European natural gas saw persistent strength. Paper markets priced in sanctions and redirection risks, while physical markets faced real pipeline disruptions for gas and redirected (but discounted) Russian crude. Europe shifted heavily to LNG, highlighting physical chokepoints and infrastructure limits. Tightness lingered longer than in the swift Middle East conflicts, but global oil buffers and redirection prevented outright absence in most regions.

In these cases, markets primarily priced scarcity — a risk premium reflecting potential future shortfalls — while physical supply chains adapted or recovered relatively quickly. Inventories acted as shock absorbers, and futures curves often normalized once immediate risks passed.

How This War Is Different

The 2026 Iran conflict stands apart due to its direct assault on a critical chokepoint: the Strait of Hormuz, through which roughly 20% of global seaborne oil and LNG trade typically flows. Disruptions (including closures/blockades, attacks on infrastructure, and shipping halts) have created a supply shock on the order of 15+ million barrels per day equivalent at peak impact.

Key differences:

Scale and nature of physical disruption: Not just risk, but actual flows curtailed. Massive inventory draws (hundreds of millions of barrels) have already occurred.
Staggered regional impacts due to logistics: Asia feels the pinch first (shorter tanker routes mean faster depletion). Europe follows, with the U.S. later.
Infrastructure damage: Particularly to Qatar’s Ras Laffan LNG facilities (roughly 17% of Qatar’s capacity, or ~12.8 MTPA, reportedly offline for 3–5 years). This extends the LNG supply hit well beyond temporary shipping issues.

Depleting buffers: IEA emergency releases, floating storage, pipelines, and other workarounds are finite and running down. Headline global inventories mislead because much stored oil is unusable (needed for operational minimums in tanks and pipelines).
Prolonged uncertainty and failed “tweets”: Multiple rounds of deal speculation have not resolved the physical reality. Iran’s leverage grows daily as inventories fall.

As Currie noted on Squawk Box Asia and in related commentary, Asia is already at or near “tank bottoms” (minimum operating levels). Europe faces similar strains within weeks (post-bank holiday period), and the U.S. risks issues by July amid summer demand. Product markets are flashing warning signs — e.g., diesel prices in Singapore surpassing jet fuel as cracks widen.

This is no longer just pricing scarcity. Physical absence is approaching in key regions and products.

Implications for Oil: Short Term and Through 2027

Short term (next 1–6 months): Expect physical markets to dominate. As usable inventories hit operational floors, product prices (especially middle distillates like diesel) will likely see sharp spikes or sustained strength. Crude benchmarks should firm, with potential for significant upside volatility if diplomacy falters or physical squeezes materialize. Basis (physical vs. futures) may strengthen in affected regions. Any deal headlines will cause swings, but Currie’s advice holds: the molecules will ultimately set the tone. Demand destruction or rationing signals could emerge if tightness intensifies. U.S. SPR exports provide temporary relief to Europe/Asia but are not a structural fix.

Through 2027: If the Hormuz disruption persists or resolves slowly, we could see a higher price floor and more structural backwardation or volatility. Non-OPEC+ supply responses (U.S. shale, others) will accelerate, but lead times matter. Significant demand destruction is possible, alongside inflationary pressures. The “rare earth moment” implies greater capital rotation toward hard assets and physical supply chains. A resolution could bring relief but likely leave prices elevated versus pre-conflict levels due to destroyed buffers and risk repricing. Overall, oil markets will increasingly price the reality of physical constraints rather than just geopolitical optionality.

Implications for Gas and LNG

The LNG picture mirrors oil but with longer tails due to infrastructure damage.

Short term: Global LNG markets tighten materially. The Hormuz disruption affects ~20% of LNG flows, compounded by Qatar damage. Spot prices in Asia and Europe will face upward pressure amid competition for available cargoes. Asian buyers (price-sensitive) may see demand growth curtailed. U.S. LNG exports gain relative attractiveness as a reliable alternative. Regional Gulf importers also scramble for alternatives.

Through 2027: The IEA and analysts project the global LNG supply wave will be delayed by at least 1–2 years (or more), keeping markets tighter than previously expected. Qatar’s reduced capacity (multi-year repair timeline) removes meaningful volumes. This supports higher baseline prices, incentivizes U.S. and other export project FID/acceleration, and encourages diversification away from Middle East reliance. Europe’s post-2022 sensitivity amplifies the impact. Overall, LNG will trade at a persistent premium reflecting physical absence and infrastructure realities, with knock-on effects for power generation, industry, and coal-to-gas switching dynamics.

The Bigger Picture: Repricing Atoms in a Bits-Dominated World

Currie’s framework suggests markets have underappreciated how AI and modern economies are a “marriage of bits and atoms.” Tech enthusiasm has overshadowed the physical energy and commodity foundations required. As physical absence manifests — from oil products to LNG molecules — we are entering a period where supply chains, inventories, and hard assets reassert primacy.

For the Energy News Beat audience, this means heightened focus on physical fundamentals, regional logistics, product cracks, and the companies/infrastructure positioned to deliver or benefit from molecules. Volatility will remain elevated, but the direction of travel favors those who respect the atoms over the tweets.

The shift from scarcity pricing to absence pricing is not just semantic — it is qualitative. History shows paper markets can detach; physical reality eventually reasserts itself, often painfully. The coming months will test whether markets have learned that lesson.

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