Fed's Logan: world may need to cut use of oil and natural gas

The world may need to find a way to get by on less oil and gas if the Strait of Hormuz remains closed much longer due to the U.S.-Israeli war on Iran, Dallas Federal Reserve President Lorie Logan said on Wednesday.

Iran has throttled shipping through the strait during the three-month conflict, forcing up energy, food and fertilizer prices. Around a fifth of the world's oil and liquefied natural gas transited the narrow waterway before the war.

"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 said in remarks prepared for delivery to a Bank of Japan conference. "The economic consequences would depend on the degree to which end users can switch to other energy sources or use energy more efficiently, versus curtailing economic activity."

U.S. oil executives in a recent Dallas Fed survey said they expect U.S. oil output to rise this year by only a quarter of a million barrels a day, and by only half a million barrels per day next year.

That compares with a reduction in the global oil supply of about 13 million barrels a day since the start of the Iran war -- a shortfall now being largely made up by drawing down inventories that are, Logan noted, finite.

"One way or another, I expect energy markets to come into rough balance before too long," Logan said. "If the molecules aren't available, the world can't consume them."

Logan was one of three Fed policymakers who voted against last month's interest-rate decision because they felt the U.S. central bank should signal that given rising energy and other prices a rate hike is just as possible as a rate cut.

In her prepared remarks for the closed-press conference on Wednesday, she did not offer any near-term economic forecasts or comment on monetary policy.

She did use the speech to call for boosting the resilience of the Treasury market by centrally clearing the Fed's own Treasury securities trading and enhancing the Fed's liquidity toolkit beyond its standing repo operation, noting that leveraged investors have acquired a growing share of Treasuries.

"Levered positions can unwind rapidly in the event of price or funding shocks," she said. "The Treasury market underpins government finance, the flow of investment, and the implementation and transmission of monetary policy. Its resilience deserves, and requires, ongoing effort and vigilance."

(Reporting by Ann Saphir; Editing by Lincoln Feast.)

Copyright Reuters or USA Today Network via Reuters Connect.

This story was originally published May 27, 2026 at 4:09 AM.