(WO) – The war with Iran has entered its second week with the Strait of Hormuz effectively shut for more than eight days, turning what began as a geopolitical shock into a growing physical supply crisis for global oil markets.
According to new analysis from S&P Global, roughly 17 MMbpd of crude oil and petroleum products available to global markets has been disrupted since Feb. 27 as tanker traffic through the key export chokepoint remains largely halted.
Initially, the crisis centered on transportation constraints as shipowners avoided the Strait of Hormuz amid rising security risks. Now, however, analysts warn the disruption is expanding into production shut-ins across the Persian Gulf as storage capacity fills and exports remain constrained.
Iraq has already shut in about 2 MMbpd of production due to storage limitations, while Kuwait has also curtailed some output. Data reported by Platts indicate oil production in Iraq’s southern fields has fallen sharply from about 3.3 MMbpd to roughly 1.3 MMbpd.
“The first week the crisis was a transportation issue, which could conceivably be resolved quickly,” said Jim Burkhard, vice president and global head of crude oil research at S&P Global. “But it is turning into a producibility concern due to storage constraints. Restarting field production of this scale will be a massive technical exercise that could take weeks or more to fully restore output.”
Burkhard added that damage to downstream infrastructure and other oil facilities could also slow the recovery of oil flows and refined product supply.
From a global market perspective, the impact is being felt most acutely in Asia, which historically receives the majority of crude exports shipped through the Strait of Hormuz. Before the conflict, roughly 21 MMbpd of oil exports moved through the waterway, with about 80% of those volumes destined for Asian markets.
As a result, Asia has become the epicenter of the supply shock. Crude delivered to regional buyers surged above $100/bbl last week, while jet fuel and diesel prices have also risen sharply.
Several governments have already begun implementing protective measures. China and Thailand have restricted product exports, and analysts say more countries could impose similar measures if Persian Gulf supplies remain offline for an extended period.
“It is in Asia where signs of market duress are most evident,” Burkhard said. “But the longer the Strait of Hormuz remains effectively shut, the more the disruption spreads to global inventories, prices and supply chains.”
