Oil Shipments Through the Strait of Hormuz Plummet by 90%, Middle Eastern Oil Producers May Be Forced to Cut Production

(Washington, D.C.) Energy market intelligence firm Kpler said Wednesday (March 4) that oil tanker traffic through the Strait of Hormuz has plummeted since the outbreak of the Middle East war, falling by about 90% compared to the previous week.

The Strait of Hormuz accounts for about one-fifth of global crude oil supply.

Due to the disruption of shipping through this international waterway, Persian Gulf oil-producing countries have been forced to store oil in storage tanks. Iraq, with its limited storage capacity, has already been forced to begin large-scale production cuts. JPMorgan Chase warned that other countries, such as Saudi Arabia and the UAE, may also have to follow suit within weeks.

Bloomberg reported that the joint US-Israeli military operation has pushed London oil futures prices above $85 per barrel (about S$108.5), reaching a 19-month high. Further production losses could exacerbate oil price increases, thereby putting inflationary pressure on the global economy.

While US President Trump stated that the US would provide naval escorts and insurance guarantees to ensure the safe transport of Middle Eastern oil and avoid an energy crisis, shipping industry players believe these guarantees are merely stopgap measures.

"If oil producers reach their storage limits due to unsold oil, they will have to cut production," wrote Half, co-founder and chief analyst at energy and environmental geospatial data analytics firm Kayrros, on LinkedIn.

Half said that theoretically, the Arab oil-producing countries in the Persian Gulf, including Saudi Arabia, the UAE, Kuwait, and Iraq, have approximately 100 million barrels of storage capacity remaining, about one-third of their total storage capacity. However, he cautioned that the actual effective storage capacity would be even lower.

A report from JPMorgan Chase's head of commodities research, Kaneva, indicated that some Persian Gulf oil-producing countries' crude oil inventories could reach their limits in just over three weeks. If Saudi Arabia and the UAE can shift their supply to other export channels, their storage capacity could last for another week.

US: Energy Markets Only Temporarily Shocked

US Energy Secretary Wright said in an interview with Fox News on Wednesday that the impact of the conflict with Iran on energy markets will be temporary and a negligible cost to US military objectives.

Wright said, "It's definitely temporary. Global oil supplies are plentiful, reserves are abundant, and US oil production is at a record high. So we will get through this; it's just a small obstacle on our path."

He said the Strait of Hormuz is only temporarily closed, and the US Navy will soon escort oil tankers through the waterway to transport oil out.

Regarding whether any merchant ships have requested assistance from the US Navy, Wright replied, "We will act as quickly as possible. Currently, our Navy, and our military, are focused on other tasks, namely disarming the Iranian regime."

This shock to oil supplies could damage previous optimistic economic forecasts for 2026, affecting global trade, prices, and investment. Wright said there will be an impact, "but I think the cost is negligible in dealing with a country that has killed more American soldiers in the past 20 years than any other country in the world."