Analysis: A new oil shock is building. The next few weeks of war will be decisive for the economy.

The clock is ticking on the U.S.-Israeli war in Iran. The emerging view from oil industry executives and analysts is that the economic and market fallout from the war could escalate sharply if the Strait of Hormuz isn’t reopened within roughly the next one to three weeks. Even then, enough damage may have been done already to leave energy and many other prices higher for longer. 

These risks haven’t been clearly reflected in some widely followed markets, including stocks broadly and the benchmark Brent crude price. Stopgap measures to soften the blow of the oil cutoff have kept crude prices relatively low in the U.S. and European markets. But when those measures lose their effectiveness in early-to-mid April, analysts warn there will be little the U.S. or other governments can do to keep energy prices from rising dramatically. 

Iran has attacked civilian ships and energy infrastructure in its neighborhood, causing traffic in the narrow Strait of Hormuz to fall to a standstill. Roughly 20% of global oil supply normally moves through the approximately 100-mile waterway, which borders Iran. Some oil has been rerouted through pipelines, but they can only carry so much. The U.S. and others are releasing 400 million barrels of oil from strategic reserves — the biggest release on record — and the U.S. has temporarily lifted sanctions on some Russian and Iranian oil to give the market breathing room.

The White House says it believes the president’s military strategy will soon end the Iranian threat, allowing the price worries to fade.

But all agree there is no substitute for reopening the strait. Oil industry executives have in the past few days sketched out the risk of growing disruption from the war. 

“There are very real, physical manifestations of the closure of the Strait of Hormuz that are working their way around the world,” Chevron CEO Mike Wirth said Monday at S&P Global’s CERAWeek in Houston. Shell CEO Wael Sawan echoed him a few days later at the annual gathering of industry heavyweights. Disruptions that started in South Asia have “moved to Southeast Asia, Northeast Asia and then more so into Europe as we get into April,” Sawan said Wednesday.

The talk of the conference was the difference between so-called paper and physical prices, said Ben Cahill, director for energy markets and policy at the Center for Energy and Environmental Systems Analysis, University of Texas at Austin. 

Paper prices reflect trading in financial markets and are often the headline oil prices discussed in the press. They have generally remained lower than prices for physical delivery of oil, especially in Asia, which is the main buyer of crude from the Middle East.

Brent crude futures prices rose 36% from Feb. 27, the last day of trading before the started, through March 27, when they traded above $113 a barrel. But the Dubai price, which tracks physical delivery from certain Middle East sellers, is up 76%, more than twice the paper price, at $126. That price has been especially volatile lately. 

One reason paper prices are lower is they have regularly fallen in reaction to suggestions by President Donald Trump that the war could soon end or otherwise de-escalate. Traders call that “jawboning.” 

“In that sense it’s working, it’s preventing a bigger paper-market reaction,” Cahill said of Trump’s rhetoric. “But the reality of the physical market disruption is really hard to ignore.”

That disruption isn’t limited to oil and its effects on U.S. gas prices. Prices for liquified natural gas are also a worry. LNG prices in Japan and South Korea are up 48%. Costs of jet fuel are spiraling, along with more esoteric commodities such as helium. Without relief, these prices could continue to rise, driving up global inflation and eating at growth.

Markets have deteriorated over the past few days. The S&P 500 rose half a percent on Tuesday amid optimism that Trump would delay a plan to attack Iranian energy infrastructure, but proceeded to fall 3.4% from Wednesday through Friday’s close. The yield on the 10-year Treasury note has followed a similar trajectory. It has now risen by roughly a half-point over the course of the war to 4.4%, reflecting worries about inflation and the prospect that the Fed may not cut interest rates as it has hoped to do.

The looming possibility of physical supply shortages in the oil market appears to be blunting the effect of Trump’s jawboning. Financial markets reflect the reality that Trump has often managed to avoid worst-case scenarios, including when he attacked Iran’s nuclear program in June. Oil futures then spiked but quickly fell once it was clear the war wouldn’t spread. 

Trump is now moving thousands of new troops to the region. He could use them to attack Iran’s Kharg Island oil-export facility, cutting off a vital revenue source for the regime and forcing it to accept a negotiated reopening of the strait. He could attempt to retake the strait militarily. The regime could simply collapse, or any number of outcomes that would restore the flow of energy.

Futures markets reflect that those relatively optimistic possibilities are in play. But they may not be able to do so forever. 

Geopolitical strategist Marko Papic with markets advisory firm BCA Research pulled together an estimate of the sources of supply and their blockages. For now through roughly April 19, Papic estimates the world has lost 4.5-5 million barrels a day of oil from the war, amounting to about 5% of global supply. But, he writes in a research note sent out this week, “that number will double by mid-April, becoming the largest loss of crude supply.”

The world will hit an oil cliff in mid-April, in Papic’s estimation, because supplies from the strategic petroleum reserve as well as Russian and Iranian oil exempted from sanctions will run out. There is no substitute for pumping oil from the ground and sending it directly to clients. 

But the ability of the oil industry to return to delivering its product is also in question. Middle East producers don’t have enough storage for all the oil they are pumping but can’t ship, so they have had to shut in production, temporarily closing wells. Reversing that will take time. 

Sheikh Nawaf al-Sabah, CEO of Kuwait Petroleum Corp., said at the energy conference it could take three to four months to return to full production once the war ends. 

That end could come soon if Trump gets his way.

“The glimmers of light at the beginning of the tunnel are becoming more bright and more clear,” a White House official said on condition of anonymity. The official disputed the oil industry’s skepticism about the outlook. 

“I think the oil execs aren’t geopolitical masterminds,” the official said. The administration is making progress militarily, the official said, and still has more levers it can pull to get energy to the market. 

“We’re also seeing developments with Russia stepping in to expand its exports to fill that gap, so there’s still breathing room here,” the official said. 

That breathing room is real, but it appears to be quickly diminishing. Every day that Iran is willing and able to threaten shipping in the strait puts the world closer to serious economic damage.