‘Conflict in the Middle East cuts off the largest oil supply in history’

Rapidan Energy said tensions in the Middle East have disrupted about 20% of oil supply in nearly 10 days. The reason is that it is almost impossible for oil tankers to pass through the Strait of Hormuz. Before turning down in today’s trading session, the price of “black gold” exceeded 100 USD on March 9.

According to this energy consulting firm, they previously recorded the largest oil supply disruption during the Suez Crisis in 1956 when Britain, France, and Israel attacked Egypt’s Sinai Peninsula. At that time, about 10% of the global “black gold” supply was disrupted.

The difference this time compared to previous crises, according to analysts at Rapidan Energy, is that the world has almost no spare capacity left to compensate. Saudi Arabia and the UAE hold most of the spare capacity, but the supply of these two countries is also currently interrupted due to the blockade of the Strait of Hormuz.

They estimate the disruption of the Strait of Hormuz due to the Middle East conflict will be nearly three times more impactful than the 1973 Arab oil embargo, which disrupted about 7% of global supply.

“The conflict caused a large amount of global oil supply to stagnate, disrupting most of the spare capacity in major holding countries,” said experts at Rapidan. Therefore, currently the market has almost no safety cushion left and no manufacturer can quickly compensate for output.

Extent of global oil supply disruption through crises, according to Rapidan Energy

Therefore, according to Rapidan Energy, the global oil market will likely have to balance itself by reducing demand when oil prices increase sharply. The US Strategic Petroleum Reserve (SPR) is considered “limited and not enough to completely offset” the amount of oil trapped in the Persian Gulf region.

The US Department of Energy estimates that SPR currently has about 415 million barrels of oil remaining, equivalent to 58% of the total maximum capacity of 714 million barrels. A White House official told CNBC last weekend that President Donald Trump’s administration believes “the oil market remains fully supplied and if further action is needed, we will take it.”

According to experts, member countries of the International Energy Agency (IEA) are under pressure to release strategic reserves, because this is almost the last option to supplement supply.

Meanwhile, G7 finance ministers met to discuss the possibility of coordinating the release of oil from reserves. However, French Finance Minister Roland Lescure said the group had not yet made a decision.