With 16 million barrels per day effectively frozen out of global markets, JPMorgan’s commodity team lays out the arithmetic of an unprecedented disruption — and why policy can cushion but not cure the damage.
When JPMorgan’s head of commodity strategy, Natasha Kaneva, sat down to model the fallout from a war involving Iran and the closure of the Strait of Hormuz, she confronted the limits of conventional frameworks. There is no clean historical analog — no prior event that captures the scale, the geography, and the strategic complexity of what is now unfolding in the Persian Gulf. And yet, as Kaneva’s team makes clear, while the timeline of the crisis may be unknowable, the arithmetic is not.
What follows is a breakdown of that arithmetic — the barrels at risk, the workarounds being attempted, the limits of global policy responses, and the economic pain that will result when none of it is enough.
A Strait Largely Frozen
The Strait of Hormuz is the world’s most critical energy chokepoint. At its narrowest, it is just 21 miles wide — and through it flows roughly 20% of the world’s oil supply. With hostilities now active, Iran has effectively closed it. The country continues to move its own barrels through the strait — roughly 1.8 million barrels per day (mbd) — but on its own terms, with only a handful of tankers permitted passage. The rest of the Gulf’s vast oil output is largely stranded.
JPMorgan’s current estimate: nearly 16 mbd of supply is effectively sidelined from the global market. To put that in context, it is roughly equivalent to losing the combined oil output of Saudi Arabia and Russia simultaneously.
The Workarounds — and Their Limits
Gulf producers are not standing still. Saudi Arabia and the UAE are rerouting oil through overland pipelines that bypass the Strait entirely — but the numbers reveal the ceiling on what bypass infrastructure can achieve:
- Saudi Arabia has ramped up its East-West pipeline flows to the Red Sea port of Yanbu from 0.8 mbd to 3.3 mbd — an increase of 2.5 mbd. By April, operational improvements could push this to roughly 4.7 mbd, still well below the pipeline’s nameplate capacity of 7 mbd.
- The UAE has increased throughput on its Fujairah pipeline by 0.5 mbd to 1.6 mbd. JPMorgan sees little room for further upside — this route is near its effective ceiling.
Together, these bypasses replace a fraction of the lost flow. The infrastructure simply was not built to absorb a simultaneous outage of this scale.
The Policy Response: Cushioning, Not Curing
Governments are pulling every available lever. Strategic Petroleum Reserve (SPR) releases are underway across the US and IEA member states, and Asian economies facing acute shortages are being forced to draw down commercial product inventories. JPMorgan’s estimate of available policy supply, combined across all sources:
- A coordinated US-IEA crude release could supply roughly 1.2 mbd for a limited period, with product releases contributing an additional 0.9 mbd.
- Southeast Asian nations — including Indonesia, Thailand, Vietnam, Malaysia, and the Philippines — could draw down an estimated 129 million barrels of commercial product inventory, contributing around 1 mbd for several months.
- Iran and Russia together hold roughly 55 million barrels in floating storage. With sanctions recently eased, both are selling to the highest bidder, releasing approximately 0.5 mbd of additional crude.
- China could potentially draw 0.5–1.0 mbd from its enormous strategic and commercial reserves — but Beijing appears to be moving cautiously, with state-owned refiners informally discouraged from tapping stocks without explicit government approval.
Add it all up and the conclusion is stark: even with maximum policy deployment, a shortfall of approximately 10 mbd is likely to persist. The world does not have enough spare pipeline capacity, stored reserves, or production flexibility to paper over a disruption of this magnitude.
The China Question
No single actor looms larger in this crisis than China. Beijing sits on an estimated 1.5 billion barrels of stored oil — the largest strategic reserve buffer in the world. It is also the single largest buyer of seaborne crude from the Gulf. Its decisions will ripple through every oil market in Asia.
JPMorgan raises a pointed question: if IEA head Fatih Birol has described this disruption as “the biggest threat to energy security in history,” and that is still not sufficient grounds for Beijing to aggressively release its reserves — what exactly is China saving them for?
The report’s answer is left implicit, but unmistakable: Taiwan. China’s energy stockpiles may be calibrated for a future conflict of its own choosing, not the present crisis in the Gulf.
Who Gets Hurt — and How
The Hormuz closure does not hit all markets equally. The shock concentrates in specific products and sectors:
- Plastics and petrochemicals are acutely exposed. Naphtha and LPG — core feedstocks for plastic production — flow heavily through Hormuz. Already, around 5% of global ethylene capacity has been shut down across Japan, South Korea, and China.
- Aviation is under severe pressure. Jet fuel frequently accounts for more than 20% of airline operating costs; with prices surging, carriers are already cutting routes. Africa and Europe are particularly vulnerable to service reductions.
- Gasoline and diesel demand — the largest components of oil consumption — can be tempered through emergency government measures: work-from-home mandates, lower speed limits, and number-plate rationing schemes, several of which are already being implemented across Southeast Asia.
- Diesel shortages will curtail activity in agriculture, construction, and heavy transport — sectors with no quick substitutes. Tractors, excavators, and freight trucks do not run on alternative fuels.
The Last Resort: Demand Destruction
When supply cannot be restored and policy responses are exhausted, markets have only one adjustment mechanism left: prices rise until demand collapses. This is what economists call demand destruction, and JPMorgan’s note warns it has already begun.
High crude prices, combined with tightening physical availability, are forcing refiners to cut throughput as feedstocks become scarce and uneconomical. Reduced refinery runs amplify product shortages in markets already stretched thin. End-user demand is beginning to erode — driven both by outright scarcity and by the weight of prices that households and businesses can no longer absorb.
Southeast Asia — heavily import-dependent and with limited domestic refining buffers — is the most immediately exposed region. Without a rapid stabilization of supply, near-certain recession is JPMorgan’s baseline for the subregion.
The Bottom Line
JPMorgan’s analysis is methodical, sober, and deeply unsettling. The bank’s commodity team is careful to distinguish between what is uncertain — how long this lasts — and what is not: the structural gap between what the world needs and what it can get. Sixteen million barrels per day are currently offline. Policy can recover perhaps six of them. The remaining ten will be balanced by pain.
The Strait of Hormuz has always been described as a potential flashpoint. It is no longer potential. The question now is not whether the global economy will feel this shock — it already is — but how deep the damage will run before the crisis ends, if it ends at all.