Hormuz blockade could halt oil production in 25 days, JPMorgan warns
Illustrative photo: ships halt deliveries due to security situation (Getty Images)
Major producers in the Middle East will be able to maintain oil production for a maximum of 25 days if traffic through the Strait of Hormuz is completely halted, according to an analysis by JPMorgan Chase & Co.
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"The seven major producers in the region (Saudi Arabia, UAE, Kuwait, Qatar, Oman, Iraq, and Iran - ed.) have a total onshore storage capacity of approximately 343 million barrels. This capacity means that if supplies are cut off, oil can only be stored for 22 days," the report says.
About 60 empty tankers can provide another 50 million barrels, extending the total time before production stops to a maximum of 25 days.
"Once the threshold is exceeded, physical storage constraints will inevitably force producers to halt production," JPMorgan notes.
Reduction of transit through Strait of Hormuz
As of February 28, transit through the Strait of Hormuz had fallen to 4 million barrels per day, which is only a quarter of the normal level.
Following US and Israeli operations against Iran and Iranian attacks, ship owners stopped deliveries on their own initiative due to security concerns.
At the same time, JPMorgan writes that Saudi Arabia and the United Arab Emirates have pipelines to bypass the Strait of Hormuz and access alternative routes. Their capacity will be limited to achieve total exports of 19 million barrels per day.
Oil prices jump
The global fuel market is already in a state of turmoil. Oil prices recently hit a record high amid production cuts and geopolitical instability.
Regional leaders are already responding to the situation—India and Iran have raised prices for their own raw materials, creating conditions for further increases in energy prices worldwide.
