Bousso: Mideast oil shock signals a supply crunch.

The U.S. and Israeli war against Iran has caused a sudden and acute disruption in Middle East oil supply, forcing buyers to use every barrel available. This is quickly destroying forecasts for an oil glut. The International Energy Agency predicted in February that the global oil supply would exceed demand by 3.7 million barrels a day (bpd). This surplus was expected to last into 2026. One month later, this projection seems outdated. After the nearly complete closure of the Strait of Hormuz, the Gulf is effectively stranded with 15 million barrels per day of crude oil production and 4.5 millions barrels per day of refined fuels. The Strait of Hormuz was closed shortly after the launch of the joint U.S. and Israeli aerial bombing campaign on Iran, which Tehran responded by targeting Gulf States and regional energy infrastructure. Oil markets and wider economies have been shocked by the loss of a massive amount of supply, which is equivalent to nearly a fifth daily global consumption. Brent crude, the global benchmark, surged over $90 per barrel on Friday. This is a gain of nearly 30% in the last week since the conflict began. Asia, which imports 60% of its crude oil from the Middle East is the worst hit. To conserve feedstocks, refineries and petrochemicals in the Middle East have reduced production or closed their doors. Other energy-intensive industries such as ceramics, car manufacturing and others are also facing severe shortages. It is impossible to know how long the conflict and the Hormuz shut down will last. The pressure on the oil supply chain increases with every passing day.

You are running out of time and space

The Gulf producers have run out of options. Crude is being pushed to offshore and onshore tanks due to the blockage of exports. Iraq, with limited storage options has already stopped at least one-quarter of its production of 4.3 million barrels per day. Kuwait, United Arab Emirates, and Saudi Arabia - the world's biggest exporter - have some storage capacity left – but it is measured in days not weeks. Saudi Arabia and UAE are able to divert crude oil through other export routes but this only partly offsets the loss of Hormuz. Storage will fill up, forcing more producers to reduce output and idle refineries.

It is difficult to shut down oil fields in a safe manner. It can take weeks or even days to restart them and reach full production, which has a far-reaching impact on the market. Refiners, particularly in Asia, are scrambling to get barrels.

TAPPING AVAILABLE STOCK The good news is, inventories have been increasing in recent months due to the increased output of producers such as OPEC. According to the IEA, global oil inventories increased by 1.3m bpd or 477m barrels in 2025. This was their highest level since March 20, 21.

Kpler's data shows that around 80 million barrels of oil are stored at sea on tankers, and nearly two thirds of them are in Asia.

Most buyers are unable to access a large portion of this "floating storage", as it comes from Iran, Venezuela, and Russia. All three countries are subject to Western sanctions. Around 50 million barrels of Iranian crude are alone. But some of this oil is beginning to move. On Thursday, the U.S. granted India a waiver for buying Russian crude in order to assist refiners. New Delhi cut its imports sharply last month in accordance with a deal reached with Washington.

By March 6, the amount of Russian crude oil in floating storage had already dropped from 7,7 million barrels, just before the Iranian strikes.

Independent Chinese refiners are expected to take the majority of Iranian barrels located outside of the Gulf, or those that can get through the Strait.

Middle East producers will almost certainly draw on their overseas stock to meet their contractual obligations with buyers.

If the disruption continues, governments will be under increasing pressure to tap into their own reserves. OECD member countries hold strategic petroleum reserves that were created in the 1970s to address supply shocks. According to IEA regulations, countries that import oil net must have stocks equal to 90 days of imports. The U.S. is the largest oil consumer and producer in the world. It currently has more than 400,000,000 barrels of reserves. This is well below the 700 million barrels that it can hold, but since it is not a net energy importer, there is little risk in cutting into its reserves. China is the biggest unknown. According to the IEA, Beijing quietly accumulated vast reserves of oil in recent years. It added an average amount of 300,000 bpd just last year. It hasn't announced any plans to release the stocks yet, but it has told refiners to reduce fuel exports.

UNPRECEDENTED CRISE Global reserves, although ample at the beginning of this crisis are finite. This is a shock: the Strait of Hormuz was never completely blocked before. Even if the Strait of Hormuz were to be reopened tomorrow it would still take weeks to restore finely calibrated supply chain and rebalance markets.

If some Gulf oil production was diverted, it would take more than 100,000,000 barrels of stored oil to offset a disruption in supply of 15,000,000 bpd. A prolonged outage at that rate would quickly erode global stocks.

Paul Horsnell is an independent oil analyst. He said, "It's very difficult for stock to compensate for flows. Especially when the reduction in flows is that large." In the event that stocks are depleted then governments and traders will need to replenish them. This would mean a higher demand for oil, as well as a higher price, in the next year. The Middle East's supply shock has already flipped expectations of a glut to a scenario that is more realistic: undersupply.

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(source: Reuters)