Trump showdown with Iran leaves the world hostage to a violent oil shock

The US has ordered countries to cease imports of Iranian oil by November 2018. A few countries will have slightly more time to adjust but it is a total blockade. If most of the world complies – and even China might find it hard to defy – it will reduce global spare capacity to zero by the end of the year. This is worse than during the oil shocks of 1979 and 2008. Spare capacity has never fallen much below 1pc in the post-War history of the oil markets.  Once the buffers are exhausted, the slightest supply jolt can precipitate a violent squeeze. Traders had thought US sanctions would kick in gradually, starting in the late autumn.