The global energy market is confronting an unprecedented supply shock. According to a recent report by Natasha Kaneva, Head of Global Commodities Strategy at JPMorgan Chase, the current global oil supply deficit has reached 16 million barrels per day and is projected to remain at approximately 10 million barrels per day this April. This scale far exceeds any single historical supply disruption event, and the cushion provided by policy tools is insufficient to bridge this gap.
The duration is uncertain, but the deficit size is clear.
JPMorgan acknowledges in its report that modeling "unprecedented events" such as a war with Iran and a blockade of the Strait of Hormuz pushes the boundaries of traditional analytical frameworks. No past supply disruption is identical in terms of scale, geopolitical complexity, and strategic impact. The greatest uncertainty lies in the duration: the US and Israel have sent mixed signals regarding the conflict's timeline, while Iran itself appears to believe time is on its side. Furthermore, even if hostilities cease, the Strait of Hormuz may not immediately return to normal transit. However, the structure of the shock is relatively clear: which barrels are at risk, what capacity can be rerouted or substituted, the upper limits of strategic reserves, and the boundaries of policy tools—these are all quantifiable constraints. The timeline is uncertain, but the arithmetic does not lie.
Southeast Asian commercial inventories may be significantly depleted.
The disruption of Middle Eastern flows has quickly translated into direct shortages of crude oil and refined products in Asia. Southeast Asia, due to its high import dependence and limited domestic refining buffer capacity, faces particularly severe exposure. Countries including Indonesia, Thailand, Sri Lanka, Vietnam, Malaysia, Bangladesh, the Philippines, Myanmar, and Pakistan will likely need to draw heavily on commercial refined product inventories—estimated at around 129 million barrels—which could contribute a supply supplement of roughly 1 million barrels per day for several months.
Floating storage and sanction waivers: Marginal impact is limited.
Iran holds approximately 38 million barrels of crude and products in floating storage, with Russia holding an additional 17 million barrels. Combined, the two countries could release about 500,000 barrels per day of crude to the market. However, formally lifting sanctions on Iranian and Russian crude would likely have a limited marginal impact on actual supply, as these cargoes have largely continued flowing to the market through alternative channels. The meaningful aspect is that formal sanction relief might encourage large state-owned refineries in India to engage in earlier and larger-scale procurement more confidently, replacing previously more cautious private buyers.
Considering all these buffer mechanisms, JPMorgan concludes that policy tools can only cushion the shock, not eliminate it. A supply deficit of approximately 10 million barrels per day is likely to persist. In this context, the system's only remaining adjustment mechanism is price increases and the consequent demand destruction. High oil prices combined with tightening physical supply are already triggering adjustments system-wide.
Demand destruction has arrived: Chemicals, aviation, and agriculture under comprehensive pressure.
Amid supply constraints, refineries are significantly reducing utilization rates due to scarce feedstocks and negative refining margins, leading to a notable decline in product output. This further exacerbates the already tight shortage in the refined products market. From a product structure perspective, the impact of a Hormuz blockade is heavily concentrated on naphtha, liquefied petroleum gas (LPG), and jet fuel. The chemicals sector is particularly hard hit, as naphtha and LPG are core feedstocks for products like ethylene; currently, about 5% of global ethylene capacity in Japan and South Korea has been shut down. The aviation industry is another critical pressure point, with jet fuel costs typically constituting over 20% of operating costs; airlines are cutting routes, with Africa and Europe being especially vulnerable. Gasoline and diesel, as the largest demand segments, could be suppressed through coordinated policies, including mandatory work-from-home orders, reduced speed limits, and traffic restrictions based on license plate numbers. Diesel shortages will also directly impact agriculture, construction, and transportation sectors, posing substantial pressure on fuel supply for heavy equipment like tractors and excavators.