CITIC SEC: Limited Passage Discussion on the Strait of Hormuz

CITIC SEC has released a research report stating that there are preliminary signals of "partial recovery of passage capacity" in the Strait of Hormuz. Iran has begun to establish a "safe corridor" for shipping through its territorial waters, and there are expectations for the partial recovery of passage capacity for compliant crude oil tankers. According to our previous outward reports, it is estimated that diverting crude oil through Bandar Abbas, Fujairah, and Oman ports could achieve a volume of 6 to 7 million barrels per day. Assuming that passage volume recovers to 40% of pre-conflict levels and considering demand substitution in the Red Sea and the Persian Gulf, the actual demand gap is expected to shrink to less than 10%. Monitoring the marginal changes in passage capacity in the Strait of Hormuz, short-term adjustments to the supply chain may result in longer shipping distances, and the release of US strategic reserves is expected to push up TD22 (Arabian Gulf-China) freight rates. Once the passage capacity in the strait partially recovers, the need for replenishing inventories is also expected to become a catalyst for the upward cycle. Key points from CITIC SEC: Preliminary signals of "partial recovery of passage capacity" in the Strait of Hormuz, with Iran starting to establish a "safe corridor" for shipping through its territorial waters, raising hopes for the partial recovery of passage capacity for compliant crude oil tankers. According to Kpler data, since March 1, Iran's crude oil exports have accounted for nearly three-quarters of the transit volume through the Strait of Hormuz. CITIC SEC estimates that Iran's crude oil exports have exceeded 2 million barrels in nearly 20 days, higher than the daily average of 1.59 million barrels in 2025. Some crude oil tankers have had their AIS signals shut off throughout their transit through the strait and the Persian Gulf, leading to missing location data. In the past three days, two refined oil tankers have passed through the strait, with passage volumes of 2, 1, 5, 7, and 3 vessels from March 20th to 24th (compared to 127 vessels on February 27th). At the same time, signals from the shipping policy side have emerged, with the Iranian Foreign Ministry stating that "as long as there is no participation or cooperation in aggressive actions against Iran, and compliance with the safety regulations and measures published by the Iranian side, ships can safely pass through the Strait of Hormuz after coordinating with the Iranian authorities". In addition, according to reports from Lloyd's List, several governments including India, Pakistan, Iraq, Malaysia, and China are reportedly in direct discussions with Tehran on a transit plan for ships. Officials from the Islamic Revolutionary Guard Corps have established a preliminary registration system for ships for "approved" safe passage. This safe corridor bypasses Iran's Larak and Qeshm islands to the north and is completely under Iranian jurisdiction. According to reports from Lloyd's List, at least 9 vessels have passed through this waterway, including the Panamanian container ship "NEW VOYAGER", controlled by a Chinese shipowner on March 23rd, marking the first Chinese-owned vessel to use this corridor, with hopes for the partial recovery of compliant crude oil tanker passage capacity. The expected demand gap caused by limited passage is expected to be manageable. Assuming that passage volume recovers to 40% of pre-conflict levels and considering demand substitution in the Red Sea and the Arabian Gulf, the actual demand gap is expected to continue shrinking to less than 10%. With limited passage, the gradual narrowing of the demand gap due to the blockade is expected. Referring to EIA data, the daily oil shipping volume through the Strait of Hormuz is about 14.2 million barrels, with 74.6% of the oil passing through the strait heading to Asia. Assuming that passage volume recovers to 40% of pre-conflict levels, the corresponding daily oil shipping volume is 5.7 million barrels. According to a previous report from this institution titled "Logistics and Travel Service Industry Oil Cycle Series - VLCC Concentration Enhancement Reshapes Freight Mechanism" (March 18, 2026), diverting oil through Bandar Abbas, Fujairah, and Oman ports could achieve a volume of 6 to 7 million barrels per day. According to a report from the US Department of Energy on March 11, the US will gradually release 172 million barrels of strategic crude oil reserves over 120 days (equivalent to 1.433 million barrels per day). If all of this goes to the Far East, the actual demand gap in this scenario is expected to continue shrinking to less than 10%. In the short term, diverting routes and releasing strategic reserves will alleviate the oil shortage. In the medium term, with the restoration of stable passage, the release of inventory replenishment and upstream inventory digestion will bring demand impulses. In the short term, it is expected that the increase in shipping distances due to diverting routes can partially offset the oil shortage caused by the strait closure. However, infrastructure at ports like Bandar Abbas is weak, and loading and unloading efficiency is limited, resulting in longer actual voyages and congestion at ports. Additionally, for countries with low oil reserves, actual purchasing demand is expected to be higher, and whether the prices are appropriate is not the primary consideration. The pace of release of strategic oil reserves still needs to be monitored. From a medium-term perspective, when the Strait of Hormuz returns to relatively stable passage, the depleted oil reserve inventories consumed during the closure period will need to be replenished, upstream oil producers will need to digest filled oil tanks to make room for higher utilization rates, and some countries may further increase their oil reserve requirements to avoid the reenactment of geoeconomic risk events. These demands are expected to provide support for mid-term oil shipping demand, maintaining VLCC freight rates at relatively high levels on the demand side. Risk factors: Significant increase in VLCC shipping capacity; downstream inventory replenishment demand lower than expected; geoeconomic conflict impacts exceed expectations.