As tensions between the United States-Israel and Iran escalate with the ongoing military operations from both sides, oil-producing countries across the Middle East are facing a critical logistical countdown. With Iran’s continuous obstruction of oil shipment from the Strait of Hormuz – the world’s most critical oil chokepoint – the region’s primary export artery is forcing oil producers to fill storage tanks to their limits, raising the immediate threat of massive production cuts if the maritime stalemate persists.
Persian Gulf oil producers face an imminent storage crisis
With the suspension of oil shipping through the Strait of Hormuz, many major oil producers in the Gulf are being forced to stockpile stranded crude. Reports suggest that if the situation persists for a prolonged period, these oil producers may be forced to reduce or even halt production.
Iraq, hampered by limited infrastructure, has already begun significant production cuts. JPMorgan Chase & Co. analysts have warned that Saudi Arabia and the United Arab Emirates may also be forced to follow suit within a matter of weeks as their own reservoirs are rapidly filling up. The Gulf has a total remaining storage capacity of approximately 100 million barrels.
Strait of Hormuz Importance
A narrow, strategically vital waterway located between the Persian Gulf and the Gulf of Oman, the Strait of Hormuz is one of the world’s key oil and energy routes. At its narrowest, it is just 33 kilometres wide, with shipping lanes barely 3 kilometres wide in each direction.
Despite its size, roughly 20 per cent or one-fifth of the world’s oil and gas supply passes through this corridor daily – about 20–21 million barrels of crude, condensate and fuels. It is also a vital route for liquefied natural gas (LNG), particularly from Qatar.
If this route remains closed for a prolonged period, supplies could be cut by approximately 3.8 million barrels per day by the 15th day and 4.7 million barrels per day by the 18th day, according to a JPMorgan report.
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Israel-US vs Iran war: Military conflict drives global oil rally
The joint US-Israeli military campaign has already propelled oil futures to a 19-month high above $85 a barrel in London. Deeper production losses would likely intensify the rally and add inflationary pressures for the global economy.
On Thursday, oil rose further after Iran’s Tasnim news agency reported that a US oil tanker in the northern Persian Gulf had been hit by a missile launched by Iranian forces. Brent crude lifted by 3.3 per cent to $84 a barrel.
Gas prices also pushed higher, with UK gas up almost 1 per cent, while European natural gas futures climbed 2 per cent.
On Wednesday, crude pared some gains to trade near $82 on reports that some Iranian officials had sought peace terms with Washington.
Strait of Hormuz Closed: How many days will it take for storage to be filled?
JPMorgan warned that if oil supplies through the Strait of Hormuz remain halted for a long time, the storage of many major oil-producing countries in the region could be exhausted within a matter of days.
The report states that if exports are halted amid the escalating war tensions, Iraq’s oil storage will be filled in approximately six days. Similarly, Kuwait’s oil storage could be filled in approximately 14 days, while the UAE’s in approximately 16 to 19 days, Qatar’s in approximately 20 days, and Saudi Arabia’s in approximately 36 days, respectively.
- Iraq: approximately 6 days
- Kuwait: approximately 14 days
- UAE: approximately 16-19 days
- Qatar: approximately 20 days
- Saudi Arabia: around 36 days
(Note: Re-routing denotes where Saudi Arabia and the UAE have alternative options to partially by-pass Strait of Hormuz)
Strait of Hormuz Closed: 3.3 million barrels per day impacted
JPMorgan analyst, in a note, according to Reuters, said that if the Strait of Hormuz remains closed, crude oil supplies from Iraq and Kuwait could be cut off within days, leading to a reduction of 3.3 million barrels per day (bpd) by the eighth day of the Middle East conflict.
The bank on Tuesday said that Iraq and Kuwait have roughly between three and 14 days, respectively, before they would be forced to halt crude oil exports that pass through the Strait of Hormuz.
Strait of Hormuz closed: Impact on oil prices
Experts say that international crude prices jumped to a 19-month high of $85 per barrel due to rising oil supply risks. However, prices later softened to around $82 per barrel after Iran hinted at possible peace talks.
According to reports, major export terminals in Saudi Arabia, such as Ju’aymah and Ras Tanura, are filling up rapidly. JP Morgan says that if alternative export routes are not found soon, some oil producers could reach “tank top,” or full storage capacity, in a little over three weeks.
US to provide assistance
Although President Donald Trump has pledged that the US Navy could escort oil tankers passing through the Hormuz to secure passage if necessary.
Meanwhile, according to Iranian media, a senior Islamic Revolutionary Guards official has claimed that the Strait of Hormuz is closed and any ships attempting to pass through it could be attacked. This situation has become a major concern for the global energy market.
(With Reuters inputs)
