Finally, the Gulf oil crisis is here!

# Ye Zhen

Source: Wall Street见闻 (Wall Street CN)

The blockade of the Strait of Hormuz has triggered an unprecedented energy crisis, with escalation far exceeding all prior expectations. This crisis has been compounded by an unprecedented new variable: Qatar’s rise as the world’s largest exporter of liquefied natural gas (LNG), which has extended the energy shock from oil to the natural gas market. This has sent both European and Asian natural gas prices soaring and is expected to trigger severe ripple effects across industries from chemical manufacturing to Asia’s power sector.

With the Strait of Hormuz effectively sealed, global energy markets are being pushed toward what could be the worst energy crisis since the 1970s.

Oil prices exploded at Monday’s opening.

WTI crude futures surged as much as 22%, breaking above $110 per barrel; Brent crude futures also jumped 20% to $111.04 per barrel. Gains later moderated.

Meanwhile, as crude exports are blocked and storage space rapidly runs out, more major Middle Eastern oil producers are being forced to announce production cuts.

As previously reported by Wall Street CN, a wave of production cuts is rapidly spreading across the Gulf region.

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

Goldman Sachs has effectively “scrapped” its earlier optimistic outlook, warning that the actual drop in traffic through the Strait of Hormuz is far steeper than expected. If traffic does not resume in the coming days, upside risks to oil prices will expand significantly.

More critically, the severity of this crisis has far outstripped initial assessments by all parties.

At the outset of the Israeli and U.S. strikes, Gulf state officials widely believed the situation would remain contained and limited in escalation, as in past conflicts.

But this time, an unprecedented new variable has been added:

Qatar has become the world’s largest LNG exporter.

When its core facilities shut down, roughly 20% of global LNG supply is abruptly cut off. The energy shock has thus quickly spilled over from the oil market to the natural gas market.

The result: natural gas prices in Europe and Asia have surged in tandem.

Next, a cascade of ripple effects is likely to hit everything from China’s chemical manufacturing to Asia’s power sector.

## The Hormuz Crisis Exceeds All Expectations

The speed of the crisis’s escalation has caught markets off guard, largely stemming from initial miscalculations by all sides.

According to The Wall Street Journal, in the weeks before the Israeli and U.S. strikes, Gulf oil-producing officials received assurances from Washington that any retaliation would target only U.S. military bases.

In other words, Iran would not attack Gulf energy facilities or attempt to block the Strait of Hormuz.

After all, during the 12-day Israeli and U.S. bombing campaign against Iran last June, the Strait of Hormuz remained fully open.

Thus, when the strikes actually occurred, most officials remained optimistic.

Some officials even shared memes of Mr. Bean giving the middle finger in chat groups, likening Iran’s potential retaliation to the bumbling comedy character.

OPEC held a meeting on the first Sunday after the strikes, with discussions focused on whether to increase production; few seriously debated the situation in Iran.

Until events quickly spiraled out of control.

A senior Saudi official later admitted:

“We truly did not expect Iran to strike the entire Gulf, casting aside all relations with us.”

Subsequently, an audio recording purporting to be an Iranian naval officer radioing ships to stay out of the Strait of Hormuz spread rapidly in industry WhatsApp groups.

Tanker traffic plummeted immediately, and market sentiment swung to panic.

## Storage Crisis Spreads, Production Cuts Mount

The near-total blockade of the Strait of Hormuz quickly triggered a chain reaction across Middle Eastern oil producers.

The core reason is simple: storage tanks are nearly full.

Iraq was first to impose output curbs as its tanks neared saturation, slashing production by more than two-thirds.

Kuwait Petroleum Corporation then formally declared force majeure.

According to Bloomberg, citing insiders, Kuwait’s production cuts have expanded from around 100,000 barrels per day (bpd) on Saturday to nearly 300,000 bpd, with further adjustments to come based on storage levels and strait conditions.

In January, Kuwait produced about 2.57 million bpd, with the Strait of Hormuz as its only export route. A prolonged blockade could exhaust its storage capacity in weeks or even days.

Abu Dhabi National Oil Company (Adnoc) also announced Saturday it is “adjusting offshore production levels to address storage requirements”.

As OPEC’s third-largest producer, the UAE pumped over 3.5 million bpd in January.

While Adnoc operates a pipeline to the port of Fujairah with a capacity of about 1.5 million bpd, allowing partial exports to bypass the Strait, this route cannot fully replace the strait’s shipping capacity.

JPMorgan estimates that if the strait remains closed by the end of this week:

- Regional production could fall by more than 4 million bpd

- By the end of March, Asian spot LNG prices (JKM) could rise by about 50%

Both would hit three-year highs.

LNG tankers are even engaged in “scramble for cargo” battles on the high seas.

One LNG vessel, the *Clean Mistral*, made a sudden 90-degree turn toward Asia en route to Spain; several other ships followed suit.

Worse still, restarting operations takes time.

Reuters cites industry estimates:

- Restarting Ras Laffan alone takes about two weeks

- Returning to full production requires another two weeks

HSBC calculations:

- A one-month shutdown would cost about 6.8 million tons of LNG

- A three-month shutdown would cost about 20.5 million tons

Given Trump’s earlier prediction that the war with Iran would last four to five weeks, the market’s base-case supply loss is already approaching 8 million tons.

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

While the U.S. is the world’s largest LNG exporter, its spare capacity is estimated at only about 5%; Norway says its gas production is near full capacity; Australia also has limited spare capacity.

## Goldman Sachs “Tears Up Report”: Oil Upside Risks Expand Rapidly

Goldman Sachs’ commodity research team, in a March 6 report, effectively disavowed its earlier forecasts.

Goldman Sachs Chief Oil Strategist Daan Struyven had previously set a baseline scenario:

- Strait of Hormuz traffic holds at about 15% for the next 5 days

- Recovers to 70% over the following two weeks

- Returns to 100% in another two weeks

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

But reality quickly shattered these assumptions.

Goldman Sachs’ latest estimate:

- Strait of Hormuz traffic has fallen by about 90%, a drop of roughly 18 million bpd

- Actual redirection via alternative pipelines is only one-quarter of the theoretical maximum

Meanwhile, most shipowners are now adopting a wait-and-see approach.

What is truly deterring vessels is not freight rates but physical safety risks—so long as physical risks persist, ships will not transit, no matter how high freight rates climb.

Goldman Sachs stated bluntly in the report:

If no signs of a resolution emerge this week, oil prices could break above $100 next week.

If strait traffic remains depressed throughout March, oil prices—especially for refined products—could surpass historical peaks seen in 2008 and 2022.

The report also emphasized:

Upside risks to oil prices are “expanding rapidly.”

Energy historian Daniel Yergin also warned:

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

## U.S. Relatively Insulated, but Shock Spreads

U.S. Energy Secretary Chris Wright said Sunday on Fox News that energy flows would “resume shortly” through the Strait of Hormuz, arguing that the oil price rally stems mainly from market concerns over the conflict’s duration.

Trump, speaking aboard Air Force One, said he is not worried about gasoline prices and expects oil to fall “very quickly” once the war ends.

Compared to the 1970s, the U.S. energy structure today does offer greater buffer capacity.

The oil and gas sector accounts for a smaller share of GDP, and the U.S. has itself become a major energy exporter.

But the problem remains:

Oil prices are set globally.

Rising retail gasoline and diesel prices will still hit U.S. consumers directly.

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

Meanwhile, some U.S. government responses conflict with existing policies.

To mitigate the impact of Gulf supply disruptions, the U.S. Treasury has relaxed some sanctions on Russian crude, allowing countries like India to source alternative supplies.

This stands in stark contrast to earlier policies aimed at isolating Russia’s oil industry.

According to HSBC and Morgan Stanley analyses, this energy shock is having sharply divergent impacts across Eurasia.

For China’s chemical industry, it represents, to some extent, an opportunity.

Soaring European natural gas prices have raised production costs for local chemical firms. HSBC Qianhai Securities notes this will create room for Chinese chemical companies—including in MDI, TDI, and vitamins—to expand market share and command product premiums.

In Asia, however, the problem is far more severe:

The region faces genuine energy supply shortages.

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

To address fuel shortages and rising costs, some Asian countries have begun reverting to coal-fired power to maintain grid stability.

## Risk Warning and Disclaimer

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