Dallas Fed President Says Oil Consumption Would Fall If Hormuz Shipping Stays Restricted

Dallas Federal Reserve President Lorie Logan said on Wednesday that world oil and natural gas consumption could decline if shipping through the Strait of Hormuz does not return to pre-conflict levels. Before the conflict, about one-fifth of global oil and liquefied natural gas moved through the narrow waterway.

Iran has restricted passage for three months, contributing to higher prices for energy, food, and fertilizer. "With supplies highly constrained, if shipping through the strait does not soon return to prewar levels, world oil and natural gas consumption could need to fall more meaningfully than it has so far," Logan stated in prepared remarks for a Bank of Japan conference.

U.S. oil executives surveyed by the Dallas Fed expect domestic production to rise by 250,000 barrels per day this year and 500,000 barrels per day next year. That increase is far smaller than the 13 million barrels per day drop in global supply recorded since the start of the conflict.

Logan said markets will adjust regardless of policy choices. "One way or another, I expect energy markets to come into rough balance before too long," she stated.

Logan also called for measures to strengthen the Treasury market, including central clearing of the Fed's own Treasury securities trades and expanded liquidity tools. She noted that leveraged investors now hold a larger share of Treasuries. "Levered positions can unwind rapidly in the event of price or funding shocks," Logan cautioned.

She said the Treasury market supports government finance, investment flows, and the transmission of monetary policy.