A coordinated emergency release from the International Energy Agency may slow the bleeding, but Goldman Sachs says 10 million barrels a day of lost supply cannot be papered over by strategic reserves alone - and the longer the Strait of Hormuz stays closed, the worse it gets.
Global energy markets remain in crisis mode on Wednesday as the IEA is reportedly expected to announce an unprecedented 400 million barrel drawdown from member countries' oil reserves, which would surpass the 182 million barrel release coordinated in 2022 following Russia's invasion of Ukraine.
"In oil markets, conditions have deteriorated in recent days," IEA Executive Director Fatih Birol said in a statement.
IEA member countries currently hold over 1.2 billion barrels of public emergency oil stocks, with a further 600 million barrels held by industry under government obligation.
Goldman Sachs: Reserves Can't Fix The Hormuz Crisis
Speaking on Bloomberg Television on Wednesday, Goldman Sachs commodity analyst Samantha Darth laid out why financial markets may be misreading the scale of the problem.
"You can talk about a 300 to 400 million barrel release, but it's not going to be all at once, matching the pace one-to-one to the loss," Darth said.
"The fastest release we've ever seen from the group was at a pace of about 2 to 2.5 million barrels per day. So on net, we are still likely to be losing over 10 million barrels a day of oil from the market."
Goldman estimates that crude production shut-ins across the Middle East currently average 6.3 million barrels per day, based on data from Kpler, Argus and Bloomberg. Refinery outages - both precautionary and from physical damage - account for an additional 1.7 million barrels per day of refined product disruption.
Darth drew a critical distinction for markets between stopping exports and shutting in production.
"If I stop exports today but I have spare capacity on my inventories, I can just stockpile. When the chaos calms down, I can send that back to the market - you are delaying volumes, not losing them," she said.
"When you're actually halting production because you don't have anywhere to put it, that's production loss. To restart, things take a long time."
Goldman estimates it would take approximately four weeks to return production to pre-crisis levels once the Strait reopens - even if that reopening happened immediately.
The 400 million barrel figure, released at the maximum observed pace of 2.5 million barrels per day, would cover an estimated 160 days of that release - but the net supply deficit would persist at more than 10 million barrels per day throughout.
"This release can slow things down a little bit, it keeps the curve a little more managed," Darth said. "But it's not going to eliminate the shock."
Oil Reserved By Country: Who Has Buffer, Who Doesn't
Strategic petroleum reserve holdings vary sharply across major consuming nations, with Japan and Germany sitting on the deepest cushions in days-of-demand terms and South Korea and the United Kingdom facing the tightest buffers.
CountrySPR Coverage (Days of Demand)
- Japan141
- Germany130
- China114
- France97
- United States84
- Spain80
- Canada77
- South Korea48
- United Kingdom48
Tokyo has already authorized a phased release of strategic reserves to support domestic refiners and is weighing further retail fuel subsidy measures as pump prices.
"Going into this shock, inventories in OECD countries were at pretty average levels - not low," Darth said.
"The two things we'll be tracking day by day: number one, the volumes - what is the disruption every day and what can be offset by these releases. And number two, how long is this going to last? Where is the confidence that this can be contained within a month versus two or three months? Because in the latter case, the market needs to hedge against much bigger disruptions."
The Situation In The Strait: Closed, Mined and Selective
The physical situation in the Strait of Hormuz has continued to deteriorate since the Iranian Revolutionary Guard Corps formally declared the waterway closed to Western commercial shipping on March 2.
On Tuesday, Iran confirmed active mine-laying operations as of March 10, as reported by the CNN.
The U.S. military responded by destroying 16 Iranian minelayer vessels, according to U.S. Central Command, but Iran's mine inventory is believed to be largely intact, with estimates suggesting only 10% to 20% of its minelaying capability has been deployed.
According to Lloyd's List Intelligence data, shadow fleet tankers - vessels operating outside Western regulatory and insurance frameworks - account for roughly half of all strait transits recorded between March 1 and March 8.
Iran appears to be operating a selective closure: Chinese-flagged vessels and ships it deems politically aligned are permitted passage. Russian-linked tankers continue to move, though they face rising risk as mine density increases.
The Mayuree Naree, a Thai bulk carrier that had departed Khalifa Port in Abu Dhabi and was bound for India, became the latest casualty of Iran's enforcement campaign in the Strait. The Royal Thai Navy officially confirmed the incident on Wednesday afternoon.