AI Summary
5 min readThe ongoing shutdown of the Strait of Hormuz amid the Iran conflict has created a severe disruption to global oil supplies, far exceeding initial expectations. Morgan Stanley global commodity strategist Martin Ratz explains in this episode how the closure has exhausted buffers, forced production cuts, and left markets facing a net shortfall larger than recent shocks, with lasting effects on prices and supply chains.
Scale of the Tanker Shutdown
Normally, around 35 oil tankers depart the Gulf daily through the Strait of Hormuz. More than three weeks into the disruptions—recorded as of March 24—the number has dropped to near zero. Ratz estimates this equates to a shock disrupting roughly 20% of global oil supply, double the scale of the 1950s Suez crisis. Initial adaptations kept oil moving via ships already inside the Gulf, but floating storage there has now surged to over 120 million barrels, halting new loadings.
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What you'll learn
- 1 (00:00) **Episode Intro** - Martin Ratz introduces the podcast and Strait of Hormuz shutdown update on March 24th
- 2 (00:16) **Disruption Scale** - Tanker outflows from Gulf near zero vs. normal 35/day, equating to 20% global oil supply shock
- 3 (00:39) **Adaptation Limits** - Initial ship storage buffer now full at 120M barrels, halting new loadings
- 4 (00:58) **Production Cuts** - 10M b/d of upstream oil/gas offline as storage fills
- 5 (01:14) **Workarounds Insufficient** - Pipelines, reserves, escorts don't fully offset; net shortfall 10-12M b/d
- 6 (01:44) **Refined Products Strain** - Jet fuel, petrochemicals, marine fuels hit harder due to specificity
- 7 (02:34) **Economic Ripple Effects** - Fuel shortages disrupt logistics and goods movement
+ Full timestamped outline available in the app
Show Notes
Our Global Commodities Strategist Martijn Rats discusses how the Strait of Hormuz shutdown has created a deep air pocket that will likely keep markets tighter and prices higher for longer than many expect.
Read more insights from Morgan Stanley.
----- Transcript -----
Welcome to Thoughts on the Market. I’m Martijn Rats, Morgan Stanley’s Global Commodities Strategist. Today – an update on the global impact on the Strait of Hormuz shutdown.
It’s Tuesday, March 24th, at 3pm in London.
More than three weeks into the Iran conflict and the Strait of Hormuz disruptions, the numbers are striking. Normally, around 35 oil tankers leave the Gulf each day. Today, that number is closer to zero to two. That amounts to a shock. In fact, we estimate this event has disrupted roughly 20 percent of global oil supply – double the scale of the Suez crisis in the 1950s.
Now, you might think: can’t the system adapt? Can’t oil just flow another way? At first, oil kept moving by being stored on ships already inside the Gulf. But that buffer is now full. Floating storage has surged in the area to over 120 million barrels, and new loadings have effectively stopped. Once storage is filled, producers have no choice but to cut output – and that’s exactly what we’re seeing. About 10 million barrels per day of upstream oil and gas production is now offline.
Now once we reach this point, the Hormuz closure becomes a real supply loss. There are some partial workarounds. Pipelines that bypass the Strait. Strategic reserve releases. Possibly, naval escorts at some point to help ships move along. But unfortunately, none of these fully solve the problem. Even after accounting for all these offsets, the market still faces a shortfall of around 10 to 12 million barrels per day. Now, that is more than three times the supply shock markets feared in 2022, when Brent oil prices surged to around $130 a barrel.
And beyond crude oil, the supply strain is showing up even more in refined products. Now, how so? By comparison, crude oil is still flexible. One barrel can sometimes be substituted with another. But refined products – like jet fuel or petrochemical feedstocks – are much more specific. They’re harder to replace quickly. And we’re already seeing acute shortages.
Europe relies on imports for about 37 percent of its jet fuel needs, and those flows have now declined sharply. Middle East exports of naphtha, a key input for plastics and chemicals to destinations in Asia, have fallen from about 1.2 million barrels per day to almost zero. And in shipping hubs like Singapore, marine fuel prices have surged dramatically, with some fuels exceeding $250 per barrel. Once fuel shortages hit logistics, the disruption spreads beyond energy to affect the movement of goods across the economy.
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