Running on Empty: How the West Is Engineering Its Own Energy Shock

It seems an energy crisis is once again being manufactured, not only by war but by deliberate policy. The Strait of Hormuz, the passageway for a fifth of the world’s traded oil, is shut once again. The US Strategic Petroleum Reserve is at its lowest level since 1983. Russia, the world’s second-largest diesel exporter, has banned all diesel exports. And Europe heads into the winter with the lowest gas reserves in 15 years, while paradoxically purchasing record volumes of gas from the same country it is arguably fighting a proxy war with. A supply issue becomes apparent as strategic reserves, spare refining capacity, and storage are under stress and depleted. This could be a recipe for disaster if it continues unabated.

Since 28^th February 2026, when the US and Israel launched their air war on Iran, the Strait of Hormuz has been blocked. Prior to its closure, approximately 25% of seaborne oil trade and 20% of global LNG passed through it. This has ballooned oil prices. For instance, Brent rose 65% by the end of March, the highest monthly increase recorded. The amount of oil available to the world economy collapsed by 10.1 million barrels per day throughout March. The IEA has described this as the largest supply disruption in the history of the global oil market.

Notably, there has been less media coverage of this issue since the US-Iran Memorandum of Understanding was signed on the 18th June, which led to the reopening of the Strait. It saw Brent fall below $70 by the 1^st of July. However, Iran has recently closed the Strait again this week amid a continuing US naval blockade of Iranian ports, causing Brent to increase by over 3%. 

The shutting of the waterway is significant for many reasons. The narrow channel of 21 miles between Iran and Oman is the only sea exit from the Persian Gulf. It enables the oil and gas of Saudi Arabia, Iraq, Kuwait, Qatar, the UAE, and Iran to be transported when other routes are not feasible, though pipeline capacity is limited in Saudi Arabia and the UAE. The last time it was closed, the IMO found that 20,000 mariners and 2,000 ships became stranded in the Gulf, while commercial shipping halted because the risk of attack or of encountering laid mines made sailing uninsurable.

One way the US addressed this issue last time was by tapping into its Strategic Petroleum Reserve (SPR). The SPR represents the hundreds of millions of barrels of crude oil the US stores in giant underground salt caverns along the Gulf coast. It was created after the 1973 Arab oil embargo caused unprecedented fuel shortages. The purpose is to provide the barrels to refineries to keep prices down during global supply disruptions.

As of 3 July, it had 319.5 million barrels, the lowest level since April 1983. Nearly 90 million barrels have been released since March, when the Hormuz disruption took its toll, at times drawing down as much as 9 million barrels per week. Restoration of the reserve would cost nearly $20 billion, according to Energy Secretary Chris Wright, and take years. This poses an energy security risk for the US when China has 1.4 billion barrels in its reserves, four times the US level. Analysts warn that there may be market panics in July and August amid global reserve depletion.

The depletion will impact the US even though it produces significant amounts of oil. Traded as a global commodity, oil is priced at the world level regardless of where it comes from. Moreover, restoring supplies becomes counterintuitive when purchases would drive up prices, and the caverns have engineering limits on how quickly they can be filled. 

Alongside this news, Russia, which accounts for 11% of the global diesel supply, announced a ban on all diesel exports from 8 July. This is thought to be due to the Ukrainian drone strikes, which impaired close to 30% of its refining capacity. This led to a 13% increase in global diesel prices in a day, with European crack spreads hitting $60.17/barrel and US distillate stocks 6% below the five-year average. This indicates a scarcity of refining output.

This is important because diesel fuels the physical economy, and diesel price inflation raises the prices of most products, since many items are transported by diesel-powered vehicles. Due to inelastic demand, an increase in the price of diesel does not lead to a reduction in demand, so a tightening of supply does not cause an incremental rise in prices but rather a spike. 

The Kremlin’s export ban is likely to have a disproportionately negative impact on countries such as Turkey, Brazil, and those spanning North Africa, which will have to purchase from the US, the Middle East, and India, competing with Europe for the same barrels. While it is a temporary ban, with the end, 31st July, in sight, Moscow cannot sustain the 18-hour fuel queues across its 83 regions that occurred after Ukraine’s strikes on its refineries. 

It is important to note that while all this is happening, the EU has bought a record 9.89 million tonnes of LNG from Russia’s Yamal plant in H1 2026, according to the Financial Times. It is particularly interesting that the EU intends to buy nearly all the facility's output, given its planned ban on long-term LNG imports from Russia. EU imports of Russian LNG increased 16% year on year in spite of the war, and Russia remains the EU’s second largest supplier of LNG. In total, the EU countries spent €5.9 billion on Russian pipeline gas, while IEEFA reports that €6.7 billion was spent on Russian LNG in 2025.

This reveals the EU's continued dependence on Russia for energy, while the FT highlights that the EU will likely have the lowest gas reserves in 15 years, with reserves projected to be 76% by the end of the restocking season. The decision to continue importing Russian energy amidst a war, indirectly waged by funding Ukraine’s sustaining of its military efforts, as well as the Kremlin’s decision to allow it to occur despite having accused the EU of engaging in a war, indicates a striking paradox. Short-term purchases of Russian LNG were banned by the EU on 25th April 2026, while long-term LNG contracts will end in January 2027. Russian oil imports are currently said to be phased out no later than the end of 2027.

There remains little indication of how the EU intends to acquire the energy it needs without dependence on Russia and to endure further economic distress. The US already supplies two-thirds of Europe’s LNG imports in 2026, and it is on track to overtake Norway as the largest gas supplier. By 2028, the US will account for 80% of EU LNG imports if it proceeds with its ban on Russian energy. However, this could have crippling financial consequences for the EU due to the high cost, especially when combined with cheap Russian oil and gas. Considering the economic malaise and deindustrialisation that afflicts much of Europe, this is unlikely to prove a rational or fiscally responsible move. They are buying LNG because of the incoming ban and because Qatar shut its gas liquefaction early in the war after sustaining a missile attack on its LNG plant, which would take five years to repair.

This is significant, as Europe began the refill season with its gas reserves at 28% full, after a cold winter and amid the loss of Qatari LNG through the Strait of Hormuz. Storage is projected to reach just 76% by November, well below the 90% target. Every five-point shortfall in November storage translates to two to four weeks less buffer at peak winter demand. This means that a cold January in 2027, with storage starting at 76%, is likely to trigger price spikes and necessitate industrial rationing.

The fact that France, Belgium and Spain are taking record amounts of Yamal cargoes when the EU continues to finance Ukraine’s strikes on Russian refineries makes the conflict begin to look like theatre. While thousands of innocent Russians and Ukrainians are losing their lives in the meat grinder, with an end to the war not in sight, the elites continue to rationally bargain for their own financial ends and short-term interests.

Meanwhile, the death of Senator Lindsey Graham on 11 July occurred rather suddenly after he returned from Kyiv, having announced support from the Trump administration regarding his bill that seeks to impose 500% tariffs on countries that buy Russian oil, gas and uranium. This bill would likely impact China and India, given that they took most of the oil redirected after 2022. 

Indian and Chinese markets still depend on Russian oil, which has, ironically, kept global supply stable during the Strait closure. Graham’s bill, however, would squeeze it when every other buffer is spent. The Trump administration froze the bill previously to prevent a price spike. Notably, the recent green light was given only after it was thought that the Iran conflict had ended. Recent events contradict this.

The effects of the energy crisis have already been felt in many ways. It is illustrated by the $1.16/gallon increase in pump prices in the US (the rise since the war began), the 95% spike in jet fuel prices, the collapse of Spirit Airlines in May and the Philippines being forced into a four-day workweek to reduce demand. This could worsen if oil approaches $170 - the level at which analysts warn the hit to inflation and growth roughly doubles - producing a 1970s-style squeeze that central banks cannot fix, since interest rates cannot produce an extra barrel of diesel.

It is rather peculiar that this energy crisis is understated by the media and government. The supermarket prices currently reflect spring’s energy costs, so the alarm bells have yet to chime. The current squeeze on diesel and gas will affect households in late 2026 and into winter. The heating bills will arrive at a time when freight surcharges filter onto shelves, and Europe, during a potentially cold January, will have to face the consequences of storage that began the season nearly three-quarters empty. The hundreds of billions of dollars governments spent to protect consumers in 2022 are unlikely to recur in the current economic climate. A supply crunch is incoming, while policy, which can only be described as self-sabotage, is likely to exacerbate the shortage.

Image: Wikimedia Commons/US Air Force

Licence: US governmental work (public domain).

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