Finally, the Gulf oil crisis has arrived

Nearly blockaded in fact, the Strait of Hormuz is pushing the global energy market toward what could be the most severe energy crisis since the 1970s!

On Monday’s open, oil prices surged sharply.

WTI crude futures soared by as much as 22%, breaking through the $110 mark; Brent crude futures also jumped 20%, reaching $111.04 per barrel. The gains then pulled back somewhat.

Meanwhile, due to blocked oil exports and rapidly filling storage, more major Middle Eastern oil producers are being forced to announce production cuts.

As previously reported by Wallstreet.cn, the wave of production cuts in the Gulf region is spreading quickly.

Kuwait has officially declared force majeure and significantly reduced output; the UAE has begun adjusting offshore production levels to ease storage pressure.

Goldman Sachs has directly “overturned” its earlier optimistic outlook, warning that the actual flow through the Strait of Hormuz has fallen far more than expected. If it cannot be restored in the coming days, the upside risk to oil prices will significantly increase.

More critically, the intensity of this crisis has far exceeded initial assessments.

When Israel and the US launched their attacks, officials in Gulf countries generally believed the situation would remain controllable and limited, as in previous conflicts.

But this time, a new variable unprecedented in history has been added—

Qatar has become the world’s largest liquefied natural gas (LNG) exporter.

When its core facilities cease operation, nearly 20% of global LNG supply is suddenly cut off. The energy shock has thus rapidly spread from the oil market to the natural gas market.

The result: natural gas prices in Europe and Asia are soaring in tandem.

Next, industries from Chinese chemical manufacturing to Asian power sectors could face a series of chain reactions.

Hormuz Crisis Surpasses All Expectations

The rapid escalation of the crisis caught the market off guard, largely due to initial misjudgments by all parties.

According to The Wall Street Journal, weeks before Israel and the US launched their attack, Gulf oil officials were assured by the US that even if retaliation occurred, targets would only be US military bases.

In other words, Iran would not attack Gulf energy facilities nor attempt to block the Strait of Hormuz.

After all, during the 12-day bombing of Iran by Israel and the US last June, the Strait of Hormuz remained open throughout.

Therefore, when the attack actually happened, most officials remained optimistic.

Reports indicate some officials even shared memes of Mr. Bean giving the middle finger in chat groups, comparing Iran’s possible retaliation to this clumsy comic character.

OPEC held a meeting on the first Sunday after the attack, mainly discussing whether to increase production, with little serious discussion about Iran’s situation.

It wasn’t until the situation rapidly spiraled out of control that a Saudi senior official later admitted:

“We really didn’t expect Iran to strike the entire Gulf, completely disregarding our relations.”

Subsequently, a recording allegedly of an Iranian naval officer instructing ships via radio not to enter the Strait of Hormuz spread quickly in industry WhatsApp groups.

Oil tanker flows immediately plummeted, and market sentiment instantly shifted to panic.

Storage tanks filling up, production cuts spreading

The near blockade of the Strait of Hormuz quickly triggered chain reactions among Middle Eastern oil producers.

The core reason is simple: storage space is nearly full.

Iraq was the first to be forced to cut production due to tanks nearing capacity, with reductions exceeding two-thirds.

Following that, Kuwait Petroleum officially declared force majeure.

According to Bloomberg, citing informed sources, Kuwait’s cut has increased from about 100,000 barrels per day on Saturday to nearly 300,000 barrels per day, with further adjustments based on storage levels and the situation in the Strait.

In January, Kuwait’s daily output was about 2.57 million barrels, with the only export route being the Strait of Hormuz. If the strait remains blocked, its storage could be exhausted in weeks or even days.

Abu Dhabi National Oil Company (Adnoc) also announced on Saturday that it is “adjusting offshore production levels to meet storage needs.”

As OPEC’s third-largest oil producer, the UAE’s January output exceeded 3.5 million barrels per day.

Although Adnoc operates a pipeline to the Fujeirah port with a daily capacity of about 1.5 million barrels, bypassing the Strait of Hormuz to maintain some exports, this route cannot fully replace the transportation capacity of the strait.

JPMorgan estimates that if the strait remains closed through this Friday:

Regional daily output could decline by over 4 million barrels

By the end of March, the decline could approach 9 million barrels

This is nearly one-tenth of global demand.

Saudi Arabia has begun rerouting some crude through the Red Sea port of Yanbu for export.

But Goldman Sachs tracking data shows that over the past four days, net redirected flows through pipelines and alternative ports have only increased by about 900,000 barrels per day, far below the theoretical maximum of 3.6 million barrels per day.

Additionally, attacks on storage facilities at Fujeirah port and shortages of marine fuel further constrain alternative export options.

Qatar LNG Shutdown: A “New Variable” in the Crisis

Unlike any previous Middle Eastern energy conflict, Qatar has become the world’s largest LNG exporter.

This dependence, built over the past 20 years, has been fully amplified in this crisis.

After Iran’s drone attack on Qatar’s Ras Laffan LNG complex, QatarEnergy announced on March 2 that it would cease LNG production at the facility, citing force majeure.

Ras Laffan’s annual capacity is 77 million tons, about 20% of global LNG supply.

HSBC Global Research notes that the shutdown is not just due to the strait blockade.

With cargoes unable to be exported, on-site storage tanks hold only about 1 million tons, less than five days of normal loading. In other words, QatarEnergy has no real choice but to halt production.

Market reactions were immediate.

European benchmark natural gas prices (TTF) surged about 70% over two trading days; Asian spot LNG prices (JKM) rose about 50%.

Both hit nearly three-year highs.

LNG tankers even staged “cargo race wars” on the high seas.

A vessel named Clean Mistral suddenly turned 90 degrees en route to Spain and headed toward Asia, with several other ships making similar adjustments.

Re-starting also takes time.

Reuters cites industry estimates:

Ras Laffan’s restart itself requires about two weeks

Full capacity recovery takes another two weeks

HSBC estimates:

One month of shutdown results in a loss of about 6.8 million tons of LNG

Three months’ shutdown results in a loss of about 20.5 million tons

Considering that former President Trump predicted the Iran war would last four to five weeks, the market’s main scenario of supply loss already approaches 8 million tons.

The problem is, the global LNG market has almost no spare capacity.

The US, the world’s largest LNG exporter, has an estimated spare capacity of only about 5%; Norway says its natural gas production is near full capacity; Australia’s spare capacity is similarly limited.

Goldman Sachs “Dumps the Report”: Rapidly Expanding Upside Risks for Oil Prices

In a March 6 report, Goldman Sachs’ commodities research team nearly completely overturned its previous forecasts.

Goldman’s chief oil strategist Daan Struyven initially set a baseline path:

Hormuz flow remains around 15% over the next five days

Then recovers to 70% in two weeks

And reaches 100% in another two weeks

Based on this assumption, Goldman raised its Q2 Brent forecast to $76 and WTI to $71.

But reality quickly shattered these assumptions.

Goldman’s latest estimate:

Flow through Hormuz has already fallen by about 90%, or roughly 18 million barrels per day.

Actual rerouted flows through alternative pipelines are only a quarter of the theoretical maximum.

Meanwhile, most shipowners are now choosing to wait and see.

The real obstacle to passage isn’t freight rates but physical safety risks— as long as the physical risks exist, ships won’t pass regardless of how high the freight costs are.

Goldman Sachs bluntly states in the report:

If no signs of resolution appear this week, oil prices are likely to break $100 next week.

If the strait remains low-flow throughout March, prices (especially refined products) could surpass the peaks of 2008 and 2022.

The report emphasizes:

Upside risks to oil prices are “rapidly expanding.”

Energy historian Daniel Yergin also warns:

“This is the largest supply disruption in global history in terms of daily oil production. If it lasts for weeks, it will have profound impacts on the global economy.”

The US is relatively insulated, but the shock is still spreading

US Energy Secretary Chris Wirth said on Fox News Sunday that energy “will soon flow again” through the Strait of Hormuz, attributing the price rise mainly to market concerns over the conflict’s duration.

Trump, aboard Air Force One, said he’s not worried about gasoline prices and expects oil prices to “drop very quickly” after the war ends.

Compared to the 1970s, the US’s energy structure is more resilient now.

The oil and gas sector’s share of GDP is lower, and the US has become a major energy exporter.

But the issue remains—

Oil prices are set globally.

Rising retail prices for gasoline and diesel will still impact American consumers.

Airline executives have warned that soaring jet fuel prices will squeeze quarterly profits and could push up ticket prices.

Meanwhile, some US government measures conflict with existing policies.

To mitigate the impact of Gulf supply disruptions, the US Treasury has eased some sanctions on Russian crude oil to allow countries like India to seek alternative supplies.

This directly contradicts previous efforts to isolate Russia’s oil industry.

According to analyses by HSBC and Morgan Stanley, this energy shock has different effects across Eurasia.

For China’s chemical industry, it’s somewhat of an opportunity.

Rising European natural gas prices have increased costs for local chemical companies. HSBC Qianhai Securities notes this could lead to market share expansion and product premium opportunities for Chinese chemical firms (such as in MDI, TDI, vitamins, etc.).

In Asia, however, the situation is more severe—

The market faces real energy supply shortages.

Morgan Stanley points out that about 20% of Asia’s power and natural gas sectors depend on Middle Eastern LNG, with India, Thailand, and the Philippines being especially exposed.

To cope with fuel shortages and rising costs, some Asian countries are already shifting back to coal power to maintain grid stability.