RIYADH: Oil prices climbed above $100 a barrel on March 9 for the first time since 2022 as conflict between the US-Israel alliance and Iran continued, but analysts believe more shocks could be on the way.
The immediate concern for oil markets is no longer only the initial price shock, but how long supply and storage buffers can absorb a prolonged disruption to flows through Hormuz, a chokepoint that handles a large share of Gulf crude and liquefied natural gas exports.
A further escalation around Iran’s Kharg Island export hub could deepen the shock. JPMorgan described the location as the backbone of Iran’s crude export system, handling about 90 percent of the country’s shipments and serving as the main outlet for pipelines from its largest producing fields.
In that scenario, regional supply disruptions could deepen significantly, with an additional 1 million to 1.5 million barrels per day of losses potentially pushing total outages to at least 5 million barrels per day, or more than 8 million barrels per day including refined products.
“Oil markets have entered panic mode,” said Norbert Rucker, head of economics at Julius Baer. “Prices surged into the triple digits as the Iran war raises stress levels,” he added.
JPMorgan said the latest phase of the conflict had already resulted in major shut-ins across the region, with Iraqi output down by about 3.2 million barrels per day, Kuwait losing as much as 300,000 barrels per day, and the UAE beginning to curb supply.
The bank projected regional shut-ins could exceed 4 million barrels per day by the end of next week if storage fills and bottlenecks persist.
Rucker said the supply disruption so far was being driven less by direct physical damage than by the breakdown in trade flows through the Gulf.
“Most of this move seems to come from sentiment, as tangible and significant fundamental shifts of the conflict are not visible,” he said.
The analyst added that the disruption was “mainly about choked trade as ships avoid the Strait of Hormuz for precautionary reasons, not because of a military blockade.”
JPMorgan warned that if the terminal at Kharg Island were disabled or seized, total regional losses could rise sharply and visible shortages could begin to emerge within a week as pre-conflict cargoes are absorbed and new loadings stall.
Other Gulf producers have tried to limit the damage by diverting cargoes through alternative routes, but those workarounds are limited.
Emirates NBD said ADNOC is using infrastructure that bypasses the strait and international storage facilities, while Saudi Aramco has adjusted cargo operations to divert crude to the Red Sea.
UBS similarly said Saudi Arabia and the UAE have more storage and pipeline alternatives than Iraq and Kuwait.
The market reaction may still prove temporary if the conflict does not broaden further.
“For the economy to take a hit from a lasting energy price shock, the conflict in the Middle East would need to severely escalate, far beyond current dynamics,” Rucker said.
He added that meaningful infrastructure damage remained absent and that Julius Baer’s base case remained a short-lived but intense spike in energy prices.
Gas markets are also under strain. QatarEnergy has halted LNG production and declared force majeure on shipments to affected buyers, underscoring the broader energy market risk from a continued blockage.
Importing governments have already begun responding to contain the inflationary fallout from higher fuel costs, with several countries preparing or considering strategic reserve releases and other emergency measures.
The disruption has also triggered force majeure declarations across the Gulf, with Bahrain’s Bapco Energies making the announcement following an attack on its refinery complex, highlighting how the conflict is beginning to affect producers’ ability to meet export commitments.
Kuwait’s state-owned Kuwait Petroleum Corporation has also declared force majeure and begun cutting crude production after exports were effectively halted and tanker traffic through the Strait of Hormuz was disrupted.
