The situation in the Middle East is pushing the global oil market towards a real supply crisis.
As commercial shipping in the Strait of Hormuz is nearly paralyzed, crude oil exports from the Gulf region are continuously obstructed, and inventories are rapidly accumulating. Once the capacity of tanks and offshore tankers is filled, some oil-producing countries will have to cut production—a regional &#34;shutdown wave&#34; triggered by logistics bottlenecks is approaching.
JP Morgan commodity analyst Natasha Kaneva estimated in a report on March 7 that the scale of supply disruptions in the Gulf region could rise from the current approximately 1.5 million barrels per day to 3 million barrels per day by this weekend, and exceed 4 million barrels per day by next weekend; if refined oil tank capacity is exhausted, the shutdown scale could even approach 6 million barrels per day.
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In this context, oil prices face a distinctly asymmetric risk structure:
<blockquote>
Positive news could cause oil prices to drop by about $10, but if Gulf shutdowns truly spread, a $30 increase in oil prices would not be exaggerated.
</blockquote>
At the same time, Goldman Sachs monitoring data shows that oil flow through the Strait of Hormuz has plummeted by about 90%. If the situation does not ease in the coming days, the bank believes the probability of oil prices breaking $100 per barrel next week will significantly increase, and if transportation through the strait remains obstructed throughout March, oil prices could even challenge the historical highs of 2008 and 2022.
<h2>Strait of Hormuz: The Global Energy Artery Almost Ground to a Halt</h2>
On the seventh day of the conflict, commercial traffic through the Strait of Hormuz has nearly reached zero.
According to the latest monitoring data from Goldman Sachs' commodity research team, the vessels still navigating through the strait are almost exclusively Iranian ships. For Gulf countries that rely on this waterway to export crude oil, this means that the most critical energy transportation channel is close to being paralyzed.
At the same time, Goldman Sachs estimates that oil flow through the Strait of Hormuz has plummeted by about 90%.
If calculated based on the overall export capacity of the Persian Gulf, this change means a potential supply shock scale of 17.1 million barrels per day—equivalent to 17 times the peak reduction of Russian production in April 2022.
As a result, inventories are rapidly accumulating.
JP Morgan statistics show that since the end of February, the Gulf region has accumulated approximately 76 million barrels of crude oil inventory:
<blockquote>
<ul>
<li>46 million barrels stored on tankers</li>
<li>22 million barrels stored in refineries</li>
<li>8 million barrels stored in commercial storage</li>
</ul>
</blockquote>
This scale is equivalent to about 4.5 days of crude oil export volume for the region, and the inventory accumulation is mainly concentrated in Saudi Arabia.
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Inventory pressure is gradually pushing the problem from the transportation end to the production end
<h2>Limited Alternative Routes: Pipeline Still Has Capacity, Logistics Become a Bottleneck</h2>
Despite the obstruction in the Strait of Hormuz, Gulf countries are not completely without alternative routes.
According to JP Morgan data, Saudi Arabia and the UAE currently have about 1.6 million barrels per day of unused backup pipeline export capacity.
Among them, Saudi Arabia has significantly increased the utilization of its East-West pipeline, transporting crude oil to the Red Sea coast.
Currently:
<blockquote>
<ul>
<li>The loading capacity at Yanbu Port is about 2.5 million barrels/day, an increase of 1.8 million barrels/day compared to before.</li>
<li>Another approximately 1.3 million barrels/day is flowing to west coast refineries.</li>
</ul>
</blockquote>
This means the entire pipeline system's current throughput is about 3.8 million barrels/day, still below its rated capacity of 5 million barrels/day.
JP Morgan points out that this pipeline could theoretically be short-term increased to 6.5 to 7 million barrels/day. However, the real limitation lies not in the pipeline, but in port and shipping capacity:
<blockquote>
<ul>
<li>Limited loading conditions at Yanbu Port</li>
<li>Tight supply of tankers in the Red Sea</li>
</ul>
</blockquote>
These factors restrict Saudi Arabia's ability to quickly reallocate Gulf exports.
As for the UAE, although the Abu Dhabi crude oil pipeline can also bypass the Strait of Hormuz and retains about 400,000 barrels/day of backup production capacity, the export volume at Fujairah Port remains basically stable, with no significant increase.
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JP Morgan also warns that the Houthis remain a key variable. If Iran expands the blockade through regional proxy forces, the safety of the Red Sea route may also be affected.
<h2>Production Cut Wave Begins to Spread</h2>
As inventories rapidly accumulate, some oil-producing countries have begun to be forced to cut production.
JP Morgan's report shows that just six days after the outbreak of conflict, Iraq has already reduced supply by about 1.5 million barrels/day.
Meanwhile, Kuwait's pressure is also rising rapidly.
Due to tanks nearing saturation, Kuwait has reduced refinery operating rates by about 600,000 barrels/day, essentially shutting down all export-oriented refining capacity, only maintaining the minimum production level needed for domestic consumption.
According to JP Morgan's estimates:
<blockquote>
<ul>
<li>If the current inventory accumulation rate continues</li>
<li>Kuwait is about 4 days away from initiating upstream production cuts</li>
<li>If there is still storage space for refined oil, it could be extended to a maximum of 9 days</li>
</ul>
</blockquote>
The bank expects that supply constraint signals from the UAE may also begin to emerge early next week.
According to its scenario analysis, the scale of supply disruptions in the Gulf region could quickly expand:
<blockquote>
<ul>
<li>Current: about 1.5 million barrels/day</li>
<li>By this weekend: about 3 million barrels/day</li>
<li>By next weekend: over 4 million barrels/day</li>
<li>If storage tanks run out: could approach 6 million barrels/day</li>
</ul>
</blockquote>
<h2>Countries Begin Preparing Emergency Measures</h2>
In response to potential supply shocks, governments around the world have begun preparing emergency plans.
Japanese refineries are urging the government to consider releasing strategic petroleum reserves;
Thailand has activated its energy emergency plan and suspended oil exports to ensure domestic inventory.
The International Energy Agency has stated that if supply disruptions persist, it will prepare to coordinate a joint release of global strategic reserves, but is currently observing whether the Hormuz blockade will evolve into a long-term situation.
The U.S. government has not yet planned to utilize its strategic petroleum reserves.
The Trump administration is currently evaluating various response options, including:
<blockquote>
<ul>
<li>Waiving fuel blending requirements</li>
<li>Even involving the U.S. Treasury in the oil futures market</li>
</ul>
</blockquote>
On Tuesday, Trump announced that the U.S. would provide insurance guarantees and naval escorts for tankers to help restore shipping in the Strait of Hormuz.
Meanwhile, the U.S. has temporarily eased sanctions on Russian oil shipments to India, effective until April 4.
This adjustment has quickly changed market quotes.
Russian Ural crude oil arriving in India from March to early April is now quoted at a premium of $4 to $5 per barrel (delivered price) over Brent; whereas in February, this crude was still sold at a discount of $13 per barrel.
<h2>Oil Prices Face Significant &#34;Asymmetric Risks&#34;</h2>
According to JPMorgan, even if the U.S. provides insurance guarantees and naval escorts, these measures alone are unlikely to quickly restore passage through the strait.
Until Iran's interference capabilities are effectively suppressed, tanker navigation remains at high risk.
As a result, the current oil market is exhibiting a clear asymmetric price structure:
<blockquote>
<ul>
<li>If there are diplomatic or military developments that ease the situation, oil prices could drop by about $10</li>
<li>However, if Gulf production disruptions genuinely spread throughout the market, a $30 increase in oil prices would not be exaggerated</li>
</ul>
</blockquote>
This asymmetric risk is a core variable that the global energy market needs to assess critically at present

JP Morgan stated that oil prices face a clear asymmetric risk structure. If there is diplomatic or military progress that eases the situation, oil prices could drop by about $10. However, if the "shutdown wave" among Middle Eastern oil-producing countries spreads rapidly, with Iraq significantly cutting production and Kuwait and others set to follow, the scale of shutdowns could approach 6 million barrels per day. Once a full shutdown occurs, oil prices could surge by $30. Goldman Sachs warned that oil flow through the Strait of Hormuz has plummeted by 90%, and if the crisis continues, oil prices could even surpass the historical peak of 2008

- The ongoing crisis in the Middle East is leading to a significant supply disruption in the global oil market, primarily due to the near paralysis of commercial shipping in the Strait of Hormuz.  
- JPMorgan analysts project that supply interruptions from the Gulf region may escalate from 1.5 million barrels per day to nearly 6 million barrels per day if storage capacities are reached.  
- Governments are initiating emergency measures, while oil prices are facing asymmetric risks, potentially rising by $30 if production halts spread, despite the possibility of a $10 decrease with favorable news.

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The real oil price shock! The "production halt wave" in Middle Eastern crude oil is about to arrive