The war in Iran has led to the biggest decline in oil demand outside of the pandemic, according to S&P Global Energy.
Concretely, S&P Global Energy now expects demand to fall by about 5 million barrels a day in the second quarter. It also sees crude oil inventories decreasing by 5.5 million barrels a day in the same period, the most on record.
The combination illustrates that the "full severity of the greatest supply disruption in history is yet to come."
"That the cumulative supply loss is now approaching 1 billion barrels is a staggering figure that inventories cannot cover indefinitely. An inevitable market reckoning is coming," Jim Burkhard, global head of crude oil research at S&P Global Energy, wrote.
CNN had already warned about the possibility of demand destruction in a previous report, detailing the process in which prices rise so sharply that households and businesses are forced to change how they spend, work, travel, and invest.
Chevron CEO Mike Wirth also said that "physical shortages" of oil could start soon, beginning in Asia. It could then move to Europe and, lastly, the U.S.
In the United States, the impact is landing first at the pump. The Bureau of Labor Statistics said energy prices rose 10.9% in March, led by a 21.2% jump in gasoline, the largest monthly increase in the gas index since the series began in 1967. Overall inflation rose 3.3% from a year earlier.
Joe Brusuelas, chief economist at RSM US, warned that "time is not the ally of the American economy." He argued that energy is embedded in almost every aspect of the economy, meaning that its impact was large ripple effects. Higher oil prices raise costs for commuting, shipping, farming, flying, manufacturing, and grocery delivery, among others.
RSM economists also warned that first, oil will act like an extra tax on households and businesses. Consumers then could delay purchases, and businesses cut down on costs as a result. If oil-driven inflation keeps rising, the central bank may have less room to cut interest rates and could be forced to stay restrictive, deepening pressure on consumers and businesses.
The International Energy Agency has described the conflict as the "most severe oil supply shock in history" and warned that "demand destruction will spread as scarcity and higher prices persist." The agency now expects global oil demand to decline this year, reversing earlier projections of growth.
