Real oil price shock! The "wave of production shutdowns" of Middle East crude oil is about to arrive.

The situation in the Middle East is pushing the global oil market towards a real supply crisis. With commercial shipping nearly paralyzed in the Strait of Hormuz, crude oil exports from the Gulf region are being continuously disrupted, leading to rapid stockpiling. Once storage tanks and oil tanker capacities are filled, some oil-producing countries may have to cut production. A regional "production shutdown" triggered by logistics bottlenecks is approaching. Morgan Stanley commodity analyst Natasha Kaneva estimated in a report on March 7 that the scale of supply disruptions in the Gulf region could increase from the current approximately 1.5 million barrels per day to 3 million barrels per day by this weekend, exceeding 4 million barrels per day by the next weekend. If the capacity of oil storage tanks is exhausted, the shutdown could even approach 6 million barrels per day. In this context, oil prices face a clear asymmetrical risk structure: Positive news could lead to a drop in oil prices of around $10, but once the Gulf production shutdown truly spreads, an increase in oil prices of $30 is not an exaggeration. At the same time, monitoring data from Goldman Sachs 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 probability of oil prices breaking through $100 per barrel next week will significantly increase, and if shipping through the strait remains disrupted throughout March, oil prices may even challenge historical highs from 2008 and 2022. Strait of Hormuz: Global energy artery almost at a standstill On the seventh day of the conflict, commercial traffic through the Strait of Hormuz has almost come to a halt. According to the latest monitoring data from Goldman Sachs' commodity research team, almost only Iranian ships are currently passing through the strait. For Gulf countries reliant on this waterway for oil exports, this means that the most critical energy transportation route is close to a standstill. At the same time, Goldman Sachs estimates that oil flow through the Strait of Hormuz has dropped by about 90%. If calculated based on the overall export capacity of the Persian Gulf, this change suggests a potential supply shock magnitude of 17.1 million barrels per day, equivalent to 17 times the peak reduction in Russian production in April 2022. Stockpiles are rapidly accumulating as a result. Statistics from Morgan Stanley show that since the end of February, approximately 76 million barrels of crude oil have been accumulated in the Gulf region: - 46 million barrels stored on oil tankers - 22 million barrels stored in refineries - 8 million barrels stored in commercial storage facilities This accumulation is equivalent to about 4.5 days of the region's crude oil export volume, and the stockpile buildup is mainly concentrated in Saudi Arabia. The pressure on stockpiles is gradually shifting the problem from the transportation side towards the production side. Limited alternative routes: pipelines still have capacity, logistics become bottleneck Although the Strait of Hormuz is blocked, Gulf countries do have alternative routes. Data from Morgan Stanley shows that Saudi Arabia and the UAE still have spare pipeline export capacity of around 1.6 million barrels per day that has not been used. Saudi Arabia has significantly increased the utilization of its east-west pipeline, transporting crude oil to the coast of the Red Sea. Currently: - The loading capacity of the port of Yanbu on the Red Sea is about 2.5 million barrels per day, an increase of 1.8 million barrels per day from before - About 1.3 million barrels per day flow to refineries on the west coast This means that the entire pipeline system currently has a throughput of about 3.8 million barrels per day, still below its rated capacity of 5 million barrels per day. Morgan Stanley pointed out that theoretically, this pipeline could be temporarily increased to 6.5 to 7 million barrels per day. But the real limitation is not in the pipeline, but in the port and shipping capacity: - Limited loading conditions at Yanbu Port - Tight oil tanker supply in the Red Sea These factors limit Saudi Arabia's ability to quickly reallocate exports from the Gulf. On the UAE side, although Abu Dhabi's crude oil pipeline can also bypass the Strait of Hormuz and retains about 400,000 barrels per day of spare capacity, the export volume from Fujairah Port is currently essentially stable with no significant increase. Morgan Stanley also warns that Houthi forces are still a key variable. If Iran expands the blockade through regional proxy forces, the security of the Red Sea route may also be affected. Production shutdown spreading With stockpiles rapidly accumulating, some oil-producing countries have already started to cut production. A Morgan Stanley report shows that just six days after the conflict broke out, Iraq had cut about 1.5 million barrels per day of supply. Pressure in Kuwait is also rapidly increasing. Due to tanks nearing saturation, Kuwait has reduced refinery operating rates by about 600,000 barrels per day, basically shutting down all export-oriented refineries and only maintaining the minimum production level required for domestic consumption. According to Morgan Stanley's calculation: - If the current rate of stockpile accumulation continues, Kuwait is about 4 days away from initiating upstream shutdown - If there is still spare capacity in refined oil storage, this could be extended to 9 days at most The bank expects signals of supply constraints in the UAE may also start to appear early next week. In their scenario analysis, the scale of supply disruptions in the Gulf region could rapidly increase: - Current: about 1.5 million barrels per day - This weekend: about 3 million barrels per day - Next weekend: over 4 million barrels per day - If storage tanks are exhausted: could reach nearly 6 million barrels per day Countries start preparing emergency measures Facing potential supply shocks, governments around the world have begun preparing emergency plans. Japanese refineries are urging the government to consider releasing strategic oil reserves; Thailand has activated its energy emergency plan and suspended oil exports to secure domestic stocks. The International Energy Agency has stated that if the supply disruption persists, it will be prepared to coordinate the joint release of global strategic reserves, but is currently observing whether the blockade of the Strait of Hormuz will evolve into a long-term situation. The U.S. government has not yet planned to use its strategic oil reserves. The Trump administration is currently evaluating multiple response options, including: - Waiving fuel blending requirements - Even having the U.S. Treasury participate in the oil futures market On Tuesday this week, Trump announced that the U.S. will provide insurance guarantees and naval escorts for oil tankers to help restore shipping through the Strait of Hormuz. At the same time, the U.S. has temporarily eased sanctions on Russian oil shipments to India, effective until April 4. This adjustment has quickly changed market quotations. Russian Urals crude oil shipments to India from March to early April are now quoted at a premium of $4 to $5 per barrel over Brent (delivered price), while in February, the same oil was sold at a discount of $13 per barrel. Oil prices face a clear "asymmetric risk" According to Morgan Stanley, even if the U.S. provides insurance guarantees and naval escorts, these measures themselves are unlikely to quickly restore transit through the strait. Until Iran's interference capability is effectively suppressed, oil tanker traffic will still face a high risk. Therefore, the current oil market is showing a clear asymmetric price structure: - If there is diplomatic or military progress to ease the situation, oil prices could drop by about $10 - But if the Gulf production shutdown spreads to the entire market, an increase in oil prices of $30 is not an exaggeration This asymmetric risk is the core variable that needs to be carefully assessed in the current global energy market.