At most, it can only last 25 days? JPMorgan warns: If the Strait of Hormuz is blocked, storage limits may lead to a complete shutdown of Middle Eastern crude oil production.

The situation in the Middle East is rapidly intensifying, and the global energy market is facing the most severe supply disruption risk in decades.

In their latest report, J.P. Morgan analyst team led by Natasha Kaneva issued a warning: if the Strait of Hormuz is completely blocked, the combined land and sea storage capacity of Middle Eastern oil-producing countries can only absorb about 25 days of stranded output, after which they will be forced to halt production entirely.

J.P. Morgan stated, "Beyond that, storage bottlenecks will lead to forced suspension of production." This assessment means that, if the situation continues to worsen, the global energy market will not only face price shocks but also a physical interruption of supply.

According to CCTV News reports, on March 1 local time, U.S. President Trump delivered a video address announcing that the United States and Israel will continue their military actions against Iran until all objectives are achieved.

Against this background, although the Strait of Hormuz has not been officially blocked, ship owners have widely opted to avoid it, and oil tankers have effectively stopped passing through—this key waterway carries about one-fifth of the world’s oil and liquefied natural gas (LNG) shipments.

Passage through the strait has effectively stalled

The Strait of Hormuz is a strategic choke point in Iran's surrounding waters, and under normal circumstances, about 19 million barrels of liquid fuel are exported daily through it, of which about 16 million barrels are crude oil. However, J.P. Morgan data show that on February 28, crude oil exports on this route plunged to about 4 million barrels, almost entirely Iranian crude, only one quarter of the normal daily export volume.

Saudi Arabia, the UAE and other countries can send a portion of their oil via pipelines to other sea routes, but J.P. Morgan points out this alternative route is very limited in capacity and cannot make up for the deficit caused by a complete shutdown of the Strait of Hormuz.

25 days: precise estimate of storage capacity limit

J.P. Morgan conducted a detailed calculation of the storage capacities of seven Gulf oil producers—Saudi Arabia, UAE, Iraq, Kuwait, Qatar, Oman, and Iran.

According to the bank’s estimates, these nations’ land-based crude oil storage capacity is about 343 million barrels, equivalent to approximately 22 days of stranded production. In addition, the Gulf region has about 60 idle oil tankers that can provide an extra sea-based storage buffer, with a total capacity of about 50 million barrels, extending production for another three to four days.

Combined, Middle Eastern oil-producing countries in the event of a complete blockade of the strait can only maintain normal production for about 25 days at most. Once this limit is exceeded, storage facilities will be saturated and oil-producing countries will have no choice but to forcibly cut back or even halt production altogether.

High risk premium, energy inflation pressure emerging

The ongoing tension in the Middle East has left a clear mark on oil prices. J.P. Morgan estimates that a risk premium of as much as $9–10/barrel has already been priced into Brent crude, mainly related to the Iranian situation.

Meanwhile, energy price pressure is being passed along to the consumer end. J.P. Morgan data show U.S. retail gasoline prices have risen from $2.83/gallon in January to $2.94/gallon; although still about 6.7% lower than a year ago, the upward trend is now established.

J.P. Morgan’s report notes that in the first two months of this year, global daily oil consumption increased year-on-year by about 1.4 million barrels—almost double the bank’s previous expectations. Under the dual pressure of strong demand and obstructed supply routes, if the situation in the Strait of Hormuz further deteriorates, the upside risk for oil prices will far exceed what is currently reflected in market pricing.

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