(The opinions expressed here are those of the author, a

columnist for Reuters)

By Ron Bousso

LONDON, March 17 (Reuters) - Iran's threat to send oil

prices to $200 a barrel may sound like bombast, but as the

energy crisis drags on, that outcome looks more likely than U.S.

President Donald Trump's prediction that prices will soon fall

back to pre-war levels.

Now in its third week, the joint Israeli-U.S. war against Iran -

which has escalated into a regional conflict - has elicited a

surprisingly muted reaction from global oil benchmarks.

Brent crude now trades near $100 a barrel, about 65%

above its level at the start of the year, a price that was

unthinkable only weeks ago but still below the brief peak of

nearly $120 last Monday.

And given that roughly a fifth of global oil supplies, or about

20 million barrels per day, have been trapped by the effective

closure of the Strait of Hormuz since the conflict began, crude

prices should arguably be a lot higher.

Brent fell slightly on Monday on news that several tankers

carrying crude and oil products to India, China and Pakistan

have crossed the strait in recent days, as this indicated that

some countries maymanage to negotiate safe passage for their

vessels. But the volumes being moved are extremely modest.

Investors still appear ready to give Trump the benefit of the

doubt, betting that the crisis will unwind quickly and Hormuz

will soon be reopened. Call it the "Trump put," the "TACO trade"

or "buying the Trump," but many oil traders seem to be wagering

that the president will ultimately be able to limit the market

damage.

"When this is over oil prices are going to go down very,

very rapidly," Trump told reporters on Monday.

However, that optimism looks increasingly hard to square with

realities on the ground - both on the battlefield, where

fighting is intensifying, and in physical oil markets, where

supply snarls are metastasizing.

RED ALERT

Physical crude markets are flashing stress signals that

paper markets have so far largely ignored. Omani crude -

exported from a terminal outside the Strait of Hormuz - is

trading at a record premium of $51 a barrel to Brent, compared

with an average of just 75 cents in February, pushing the

outright price to around $150 a barrel for May loading.

A similar pattern is playing out elsewhere. Cash premiums for

Dubai crude jumped to $56 a barrel on Monday from an average of

90 cents in February, according to data from S&P Global Platts

and Reuters.

The surge reflects the enormous uncertainty over the actual

amount of supply available amid repeated Iranian strikes on oil

terminals in Oman and at Fujairah, the United Arab Emirates'

main oil-exporting terminal outside Hormuz.

For refiners, particularly in Asia, this is a serious

problem. The region relies on the Middle East for roughly 60% of

its crude imports, and the difficulty of sourcing alternative,

timely supplies is rapidly becoming acute.

A shipment from the Gulf takes around a month to reach Asian

customers, meaning that with every day Hormuz remains closed,

the supply gap facing refiners widens.

The strain is already forcing painful adjustments. Refiners

across Asia have begun cutting processing rates to conserve

dwindling stocks. China's Sinopec, the world's

largest refiner by capacity, plans to slash production

throughput this month by more than 10% from its original plan

due to a crude supply shortfall, Reuters reported.

At the same time, China and Thailand have banned exports of

refined fuels, a defensive move that risks tightening global

markets further.

As crude scarcity deepens, refined fuel prices are soaring.

Asian jet fuel prices are approaching $200 a barrel, close to a

record of about $220 reached earlier this month.

And this crisis is not confined to Asia.

Europe accounted for roughly three-quarters of Middle Eastern

jet fuel exports shipped via Hormuz last year - about 379,000

bpd, according to data analytics firm Kpler - yet no cargo has

transited the strait since the war began.

Unsurprisingly, jet fuel barges in the

Amsterdam-Rotterdam-Antwerp refining hub have surged to a record

$190 a barrel, surpassing the previous peak hit in the immediate

aftermath of Russia's full-scale invasion of Ukraine in February

2022.

THREE TIMES WORSE

The comparison with the Ukraine crisis is telling.

Russia supplied around 30% of Europe's crude imports and a third

of its refined product imports before the invasion of Ukrainein

2022.

The fear of losing supply from one of the world's largest

producers - Russia pumps around 10 million bpd - drove Brent to

$130 a barrel in the aftermath of the invasion even though this

worst-case scenario never fully materialized.

The physical disruption from the Iran war has already

exceeded that feared amount by more than three times, according

to Morgan Stanley.

To be sure, the oil market entered the Iran war in relatively

comfortable shape, with the International Energy Agency

forecasting that global supply would exceed demand by around 3.7

million bpd. Of course, that glut has been eliminated by the

current disruption.

The IEA's announcement last week of plans for a record release

of 400 million barrels from member states' strategic petroleum

reserves has helped cushion the initial blow. But drawing down

inventories cannot substitute for the delivery of new barrels.

Even the immediate reopening of Hormuz would not bring instant

relief. Around 10 million bpd of Middle Eastern production have

been shut in since the conflict began, according to the IEA.

Restoring those flows would take weeks, if not months.

The supply shock, in other words, is real and could have

legs.

Once Hormuz is finally reopened, oil prices could initially

plunge in a relief rally, but given the grim reality in the

physical markets, traders may want to think twice before betting

that the return to normality Trump has promised is coming

anytime soon.

(The opinions expressed here are those of Ron Bousso, a

columnist for Reuters.)

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(Ron Bousso; Editing by Marguerita Choy)