Quantifying The Total Oil Supply Shock: 16MMB/d Today, 10MMb/d In April

In her latest note (available to pro subs), JPMorgan's head of commodity strategy Natasha Kaneva, writes that modeling unprecedented events - especially a war involving Iran and the Strait of Hormuz - sits at the edge of what traditional frameworks can handle.

By definition, she writes, there is no clean historical analog that fully captures the scale, geography, or strategic complexity of such a disruption. The biggest uncertainty is time: the US and Israel have offered mixed signals on the conflict’s possible duration, and, crucially, Iran, which also influences the timeline, appears to believe that time is working in its favor. Just as important, an end to hostilities would not necessarily mean the Strait fully reopens for normal commerce. As a result, the duration of the conflict - and thus the persistence of supply losses - cannot be forecast with precision. 

That said, the structure of the shock is far less ambiguous: one can observe the barrels at risk, the capacity that can be rerouted or replaced, the limits of strategic reserves, and the likely policy response. These are tangible constraints. In other words, the timeline is uncertain, but the arithmetic is not.

Let’s look at the numbers 

At present:

• Iran is effectively the only exporter moving barrels through the Strait of Hormuz, with flows running at 1.8 mbd. The country is selectively allowing passage to a handful of tankers on its own terms, but the volumes are negligible.
• The rest of the Gulf’s oil is only partially rerouted and remains heavily constrained. Saudi Arabia has lifted West Sea flows from about 0.8 mbd to roughly 3.3 mbd—an increase of around 2.5 mbd—to the port of Yanbu on the Red Sea, while the UAE has increased Fujairah pipeline throughput by about 0.5 mbd from 1.1 mbd to 1.6 mbd.
• Beyond these bypasses, Hormuz is largely frozen, leaving nearly 16 mbd of supply effectively sidelined from the global market.

Looking ahead to April:

• Iranian exports are likely to remain broadly stable near current levels.
• Saudi Arabia has the clearest path to increase pipeline exports further. As operational efficiencies improve—through higher pipeline utilization, the use of drag-reducing agents, and optimized Red Sea loadings—flows could rise by another 1.5 mbd to roughly 4.7 mbd. This would remain well below the East-West pipeline’s 7 mbd nameplate capacity and assumes the Yanbu terminal can sustainably operate near its 5 mbd daily export capacity and that Red Sea routes remain uncontested, with no Houthi-related disruptions.
• By contrast, the UAE’s Fujairah route offers little room for further upside, effectively capping its contribution.
• Policy response is now central. Strategic Petroleum Reserve (SPR) releases will be deployed across both crude and refined products. On crude, a coordinated US-IEA action could supply 1.2 mbd for a limited period, with product releases contributing an additional 0.9 mbd.

The disruption of Middle Eastern flows has quickly translated into outright shortages of crude and refined products across Asia, with Southeast Asia particularly exposed given its high import dependence and limited domestic refining buffers. In response, countries in the subregion (Indonesia, Taiwan, Thailand, Sri Lanka, Vietnam, Malaysia, Bangladesh, the Philippines, Myanmar, and Pakistan) will likely need to draw down a substantial share of their commercial product inventories - estimated at roughly 129 million barrels - potentially contributing on the order of 1 mbd of supply for several months.

China is the single largest buffer in the global system, given the scale of its strategic and commercial inventories and its central role as the marginal buyer of seaborne crude. Beijing would likely calibrate any stock releases to stabilize domestic refining runs and contain product price volatility, potentially drawing 0.5-1.0 mbd for a limited period. Current guidance, however, appears to prioritize preservation of reserves, with state-owned refiners informally discouraged from tapping strategic or commercial stocks without explicit government approval. As such, any release would likely be measured and conditional, with Beijing balancing short-term stabilization needs against longer-term energy security objectives.

A more philosophical question is why is Beijing not seeking a more aggressive drain of its emergency reserves (both for its own market and that of its regional trading partners who are facing near certain recession unless oil supply stabilizes): after all if what IEA head Fatih Birol said was "the biggest threat to energy security in history" is not deemed a sufficient emergency in Beijing's view, one wonders just what China has in store for its 1.5 billion barrels of stored oil. And yes, the word Taiwan comes to mind.

On floating storage, Iran holds roughly 38 million barrels of crude and products and Russia another 17 million barrels, with both nations now enjoying a sanctions-free market courtesy of recent decisions by the US Treasury, and both are likely to be sold to the highest bidder — together releasing about 0.5 mbd of crude into the market. Lifting sanctions on Iranian and Russian crude, however, would likely have only a limited impact on actual supply, since much of these volumes have continued to reach the market through alternative channels despite restrictions. Where it could matter is on the margin: formal easing could make large state-owned refiners in China and India more comfortable stepping in earlier or more visibly, potentially displacing private or less risk-tolerant buyers.

In sum, even at scale, policy can only cushion the shock, not eliminate it, and a shortfall on the order of 10 mbd would likely remain.

The only remaining adjustment mechanism is higher prices and the demand destruction they trigger. High crude prices, coupled with tightening physical availability, are beginning to force adjustments across the system.

With supplies limited, refiners are cutting runs as feedstock becomes scarce and uneconomic, materially reducing product output and amplifying shortages in already strained product markets.

Worst of all, the dreaded demand destruction is here (as we warned last week). End-user demand is now eroding, driven both by outright scarcity and the weight of sharply higher prices. By product, the closure of Hormuz concentrates the shock in naphtha, LPG, and jet fuel.

Plastics are particularly exposed because naphtha and LPG are core feedstocks; already, about 5% of global ethylene capacity has been shut in across Japan, South Korea, and China. Aviation is another pressure point: with jet fuel often exceeding 20% of operating costs, carriers are cutting routes, leaving Africa and Europe especially vulnerable. The largest demand components—auto gasoline and diesel—can be tempered through coordinated policy and lessons from COVID, including work‑from‑home mandates (e.g., Philippines, Pakistan), lower speed limits, and number‑plate rationing (e.g., Myanmar).

Finally, diesel shortages will likely curtail activity in agriculture, construction, and transport, where it powers tractors, excavators, and other heavy equipment.

More in the full JPM note available to pro subs.