No more 25-day buffer! JPMorgan's new estimate of the impact of the Hormuz blockade: production halved within three days

Caixin March 6 News (Editor: Xiaoxiang) Although people are now generally aware that the blockade of the Strait of Hormuz could cause significant damage to the global economy—meaning crude oil cannot reach end users, leading to demand-side shutdowns due to lack of processing raw materials—the more concerning downstream effects of the current blockade may be:

What would the situation be on the supply side if global oil transportation remains disrupted?

As Iran’s war blockade of the strait continues, Middle Eastern oil producers face a tense countdown—crude oil is filling short-term storage tanks in various countries. If the situation persists, they may face production cuts or even shutdowns.

Unlike demand—where products can be instantly restarted upon arrival—shutting down oil wells takes weeks to implement and requires weeks to recover, resulting in a substantial supply-side lag and long-term impacts.

This naturally leads to a report written earlier this week by Natasha Kaneva, Chief Commodities Strategist at J.P. Morgan. As Caixin previously reported, J.P. Morgan estimated that before Gulf oil producers hit storage limits and were forced to cut production, the crude oil market had only about a 25-day buffer.

However, this estimate, while averaging, has deviations: the reason lies in the wide disparity in storage capacity among different countries—some have ample storage facilities, others are nearly exhausted.

Therefore, based on initial storage data from the first day of conflict, J.P. Morgan revised its forecast in subsequent reports. The bank believes that as of Wednesday, Iraq and Kuwait’s crude oil exports through the Strait of Hormuz had only about 2 days and 13 days of buffer remaining, respectively. Worse, this is only a conservative estimate.

J.P. Morgan’s new calculations are as follows: setting aside the 25-day assumption—if the Strait of Hormuz remains blocked, supply losses will accelerate. On day 8 of the blockade (3 days later), forced production cuts could reach about 3.3 million barrels per day; by day 15, it could rise to 3.8 million barrels per day; and by day 18, reach 4.7 million barrels per day. This calculation only considers crude oil, not refined products.

In other words, according to J.P. Morgan’s updated storage countdown model, crude oil shutdowns could double within three days, and the energy market’s future is almost unpredictable at that point…

Antoine Halff, co-founder and chief analyst at Kayrros, a geospatial analysis firm, said that if oil-producing countries’ storage tanks fill up due to lack of export routes, they will have to cut production. He added that even in Saudi Arabia, as of March 1, the country’s eastern coast Ju’aymah terminal’s “reserve capacity is rapidly depleting.”

He revealed that this week, four of the six storage tanks at Iran’s Ras Tanura refinery, which was shut down after an attack, are already full.

“Storage capacity is not uniform,” Halff explained. “Some tanks are more strategically valuable because they are near oil fields or loading facilities. Since the storage facilities are not interconnected, the entire system has significant efficiency gaps.”

These estimates align with earlier reports this week: Iraq has already cut about 1.5 million barrels per day—its second-largest oil field Rumaila has reduced output by 700,000 barrels/day, West Qurna-2 by 460,000 barrels/day, and Maysan by 325,000 barrels/day. Meanwhile, shipping through the Strait of Hormuz remains substantially halted.

Time is of the essence

Currently, aside from Iranian ships, no confirmed oil tankers are entering or leaving the strait, but some vessels are suspected of turning off transponders during transit. For example, a Suezmax oil tanker “Pola” (carrying 1 million barrels) entered the strait at 2 a.m. local time and turned off its signals.

Analysts point out that while the Trump administration could help restore flow through the Strait of Hormuz by combining naval escort with government-backed war risk insurance, transit issues may still persist. Speed and decisiveness are critical, as increasingly tight storage limits mean delays could quickly force well closures.

Meanwhile, oil infrastructure continues to be targeted: UAE reports that after intercepting a drone, a fire broke out at its Fujairah hub—which hosts multiple refineries and storage facilities.

The large fire in Fujairah, along with Iran’s potential shutdown risks, has continued to push oil prices higher this week, with Brent crude approaching $85 per barrel. Local waters remain tense. As reported Thursday, an oil tanker docked off Kuwait’s coast was hit by an explosion, causing oil to leak into the sea. Many industry insiders fear that if Iran begins attacking loaded tankers in any part of the Persian Gulf (not just the Strait of Hormuz), the situation could spiral out of control. This could accelerate production halts, as countries may cease shipments altogether.

Of course, amid many bearish signals, there is still a glimmer of hope: Signs have emerged that Saudi Arabia is transporting crude via east-west pipelines to the Red Sea. While this is far from enough to offset the losses caused by the de facto blockade of the Strait of Hormuz, it is at least some relief.

According to Saudi Aramco data, the capacity of its east-west pipelines is about 7 million barrels per day. Pre-war actual throughput was less than half that, so an additional roughly 5 million barrels per day could be released to help absorb inventory backlog.