JPMorgan's Oil Crisis Math: 6.5MM Barrels Now Shut-In, Rising To 12MM Next Week

Today marks the second week of the Iran war, and the oil market is beginning to feel the physical reality of a supply disruption.

As JPM's chief commodity strategist Natasha Kaneva writes in her market note today (available to pro subs) commercial tanker activity remains extremely limited, with most movements dominated by Iranian vessels, many likely heading toward China.

Cargoes that departed the Gulf before the Strait’s closure are still arriving at their destinations, but new shipments have largely stopped. As a result, the pipeline of incoming supplies is steadily running dry and is likely to be exhausted by the end of this week for Asia-bound shipments and by the end of next week for shipments to Europe.

Meanwhile, the dreaded production shut-ins (which take weeks to reverse) have now risen to 6.5 mbd, about 1 mbd above JPM's initial expectations.

Worse, by the end of next week, JPMorgan expects crude supply cuts to approach 12 mbd, making the deficit highly visible across physical markets.

And this is where it gets really bad: echoing Goldman's latest take, Kaneva writes that in an environment where global supply is short by nearly 7 mbd, "the only way the market can rebalance is through a comparable reduction in consumption." Yet unlike Goldman, Kaneva explains that the phrase “demand destruction” mischaracterizes what is happening. Aside from a roughly 400 kbd drop in demand linked to reduced air travel in the Middle East, global consumption has not collapsed. Instead, the market is facing an acute shortage of products—diesel, jet fuel, LPG, and naphtha that cannot be consumed simply because they are not available.

One thing people forget is that the Strait of Hormuz is not only a crude artery but also a major corridor for LPG, naphtha, and middle distillates like diesel and jet fuel, with roughly 5 mbd of refined products normally transiting the strait. Europe is particularly exposed given its heavy reliance on Middle Eastern distillates following the ban on Russian imports. Since 2023, the region has also become a major jet fuel exporter, aided by the start-up of Kuwait’s export-oriented Al-Zour refinery.

With exports stranded, and no pipeline‑rerouting options available, roughly 2 mbd of Middle Eastern refining capacity is effectively offline due to export constraints and infrastructure attacks, tightening global product balances almost immediately. The squeeze is already acute in middle distillates - particularly diesel and jet fuel - given the Gulf’s role as a key supplier to Europe, Africa, and Asia. Naphtha markets are also tightening, especially in Northeast Asia where it is a critical petrochemical feedstock, and the loss of LPG exports from Qatar and the UAE is beginning to pressure propane and butane markets across Asia. (see "Middle East Conflict Tightens LNG Supply, Redirects Cargoes To Asia", "Half Of Available Global LNG Tankers Are Trapped In The Persian Gulf"). And while refineries in the US, Europe, India, and Northeast Asia may lift runs to capture strong margins, both global spare refining capacity and crude availability are limited. As a result, the adjustment is likely to occur primarily through higher product prices and stronger refining margins, while inventories may provide only temporary relief if the disruption persists.

While oil's ascent has been alarming, if hardly dire - yet - product prices have already nearly tripled. Reflecting the tightness, distillate prices have risen far more than crude, while gasoline is roughly tracking crude given the Middle East’s limited role in the global gasoline market.

In recent days, Northwest Europe diesel has climbed from $100 to $140/bbl, and NWE jet fuel has jumped from $100 to $175 per barrel. Airline pricing is already reflecting a tighter jet market as carriers face sharply higher fuel costs. Air France‑KLM raised economy round‑trip fares by €50 starting March 11, SAS introduced a temporary surcharge earlier in the week, Cathay Pacific plans to double surcharges from March 18, and Air India and Air India Express are adding charges through early April.

Governments are also beginning to respond. Asia is likely to bear the brunt of the disruption, given that before the crisis it imported roughly 13.2 mbd through the Strait of Hormuz—about half of total Asian crude imports—with China (4.5 mbd), India (2.3 mbd), Japan (2.0 mbd), and South Korea (1.8 mbd) the largest buyers. Europe may be partially cushioned by product stock draws: for example, around 67 million barrels of jet fuel in strategic and commercial inventories could cover its 200–300 kbd shortfall from Gulf exports for several months, helping to absorb the immediate shock.

Needless to say, a central question is how long importers can sustain fuel supply before shortages deepen. Most rely on some combination of strategic reserves, commercial inventories, and floating storage, but coverage varies widely.

According to JPM calculations, India holds about 33 days of net crude import cover, rising to roughly 70 days when measured against Hormuz‑linked supply, while several Southeast Asian importers—including Vietnam, Myanmar, and the Philippines—maintain much smaller buffers and are already implementing stabilization measures, as are other countries across Asia.

Across Asia and parts of the emerging world, governments are introducing measures to stabilize domestic fuel markets. Some steps are precautionary—such as export restrictions or strategic stock releases—while others signal emerging physical shortages, including rationing, targeted subsidies, and demand-reduction policies. Most notably, over the weekend South Korea introduced a fuel price cap in hopes of limiting the inflationary spike that will follow (which will only lead to hoarding and even higher prices).

While it is unclear what happens next, one thing is certain: if the Hormuz closure lasts beyond this weekend, Korea most certainly won't be the last one as price controls return in a jarring replay of the 1970s.

More in the full JPMorgan note available to pro subs.