Last weekend, the wave of production shutdowns in Middle Eastern oil-producing countries accelerated. The Strait of Hormuz continues to be nearly closed, oil-producing countries are forced to limit production and suspend production, and oil storage space is about to be exhausted. Global energy supply is facing severe pressure. The market is worried about supply risks. International crude oil futures prices exceeded US$100 per barrel at the start of a new week of trading, the first time it has exceeded this round number since mid-2022. At its highest price, it was close to US$120 per barrel. However, the subsequent news that the G7 planned to coordinate the release of oil reserves quickly wiped out half of the gains in oil prices.
ups and downs
Data show that as of 20:00 on the 9th, Beijing time, the price of light crude oil futures for April delivery on the New York Mercantile Exchange rose to a maximum of US$119.48 per barrel, and is currently down to US$100.58 per barrel. The price of London Brent crude oil futures for May delivery rose as high as $119.5 and is now back down to $102.51.
The Strait of Hormuz came to a virtual standstill, becoming one of the key triggers for the surge in oil prices. Yan Jiantao, chief analyst of Jiecheng Energy, said, "Oil storage facilities in Saudi Arabia, the United Arab Emirates and Kuwait are close to their limits. Due to the closure of the Strait of Hormuz, a large amount of oil cannot be shipped out and there is a serious backlog. About 20% of global oil consumption needs to be exported through the strait, but shipping companies are worried about attacks by Iran, and oil tankers are unwilling to risk passing through this narrow waterway. This means that if crude oil cannot pass through the strait, major oil fields may face production shutdowns."
According to reports, oil-producing countries such as Iraq, Kuwait and the United Arab Emirates have reduced production due to insufficient oil storage capacity. In addition, Jinlianchuang crude oil analyst Han Zhengji added that Saudi Arabia closed its largest domestic refinery and tried to redirect some crude oil exports to the Red Sea. Qatar also said it had stopped some energy production. "This means that the blockade of the Strait of Hormuz has substantially affected the crude oil production of Middle Eastern countries, and as time goes by, this force majeure production reduction due to peaking inventories may further expand."
Furthermore, Iraq's oil production has effectively collapsed. According to Reuters, citing sources, due to conflicts in the Middle East, crude oil produced in Iraq cannot be exported through the Strait of Hormuz. Crude oil production in the country's main southern oil fields has dropped by nearly 70% to only 1.3 million barrels per day. Before the situation in the Middle East escalated, the daily output of these oil fields was about 4.3 million barrels. At the same time, Iraq's crude oil exports have also fallen sharply, averaging about 800,000 barrels per day, compared with 3.334 million barrels per day from Iraq's southern oil fields in February.
Iraq is OPEC's second largest oil producer, and more than 70% of the crude oil it produces is exported. Due to the obstruction of shipping in the Strait of Hormuz, ships are unable to reach the terminal in southern Iraq, and local crude oil reserves have reached their maximum capacity. As of the evening of the 8th local time, only two oil tankers had been able to complete the loading operations, and because no new oil tankers had arrived, the oil loading operations at the terminal had been suspended. As a result, Iraq was forced to significantly reduce production, and the remaining output will be given priority to its domestic refineries.
market chain reaction
After the international oil price exceeded 100 US dollars, the market quickly felt the shock. During the Asian trading session on March 9, risk aversion quickly swept global markets. The Asia-Pacific stock market benchmark index once fell by more than 5%, the largest intraday drop since April last year. The Korean stock market once fell by more than 8%, and the Japanese stock market fell by more than 7%. U.S. and European stock index futures also continued to fall.
In addition to the impact on the capital market, the rise in international oil prices will also have a divergent effect on the economies of various countries. Yan Jiantao told a reporter from Beijing Business Daily that a 10% increase in oil prices will cause the global economy to show an obvious "ice and fire": Canada and Latin America will become the only beneficiaries with their energy export advantages, and GDP will see a slight growth. For most regions, rising oil prices will be an economic contraction.
The Financial Times reported that the surge in international oil prices has put the Trump administration under tremendous pressure. As of March 8, the average price of gasoline in the United States increased by nearly 50 cents per gallon compared with a week ago, and the upward momentum has not subsided. The latest data from the American Automobile Association (AAA) shows that the retail price of gasoline in the United States reached $3.45 per gallon last Sunday, an increase of 16% from the previous week.
Analysts say that as WTI oil prices rise, U.S. retail gasoline prices may rise to $4 per gallon. This alone will increase the overall CPI by about 0.3-0.5 percentage points year-on-year. When factors such as diesel, air tickets, food prices, petrochemicals and plastics, utility costs, etc. are also included, the Federal Reserve and other global central banks will face serious challenges.
Yan Jiantao pointed out that Central and Eastern Europe have suffered the heaviest blow due to their highest energy dependence, with GDP expected to shrink by 0.39%. The extent of damage in India and the Eurozone is also significantly higher than the global average. In contrast, China and the United States have demonstrated strong resilience by virtue of their stronger economic size, energy self-sufficiency or policy buffers, and their GDP declines have been controlled within 0.1%.
JPMorgan Chase pointed out that every 10% increase in oil prices is expected to increase the U.S. core inflation indicator that the Fed is most concerned about by 0.1 percentage points, while U.S. gross domestic product growth will decrease by 0.2 percentage points.
Coordinated release of reserves
Regarding the next trend of oil prices, Jin Ye, the fund manager of the Galaxy Value Growth Hybrid Fund, said that the current period is a period of high oil prices. If the conflict in the Middle East does not end, the possibility of oil prices maintaining high fluctuations or continuing to rise cannot be ruled out. Even if the conflict in the Middle East eases in the future, the low after the oil price decline may be higher than the bottom of $60/barrel in early 2026 due to the destruction of facilities and the time it will take to restore transportation.
Other analysts pointed out that as oil storage facilities gradually fill up, more oil-producing countries will be forced to reduce production. And if supply disruptions continue, pressure on governments to use strategic reserves will continue to increase. Even if the Strait of Hormuz is reopened, it will still take weeks for the market to rebalance due to the cycle of oil transportation, and it will also take time for the relevant supply chains to return to normal.
Xinhua News Agency quoted the Financial Times as reporting that the G7 would hold an emergency meeting later that day to discuss the possibility of jointly releasing oil reserves under the coordination of the International Energy Agency to deal with the soaring oil prices caused by the escalation of tensions in the Middle East. At the same time, Japan's Ministry of Economy, Trade and Industry said it has asked domestic oil reserve bases to prepare for the release of reserves.
The report quoted sources as saying that officials from G7 member states and International Energy Agency Director Fatih Birol will hold a conference call to discuss the impact of the situation in the Middle East. Some U.S. officials have suggested jointly releasing 300 million to 400 million barrels of oil, accounting for about 25% to 30% of the 1.2 billion barrels of oil reserves.
Just three days ago, Birol expressed a completely different stance on this during an interview. He said at the time that oil supplies on the global market were still sufficient. Asked whether the International Energy Agency was considering tapping its emergency oil reserves, Birol said "all options are on the table" but that there were no plans to do so at this stage. He said that we do not have an oil shortage problem, but the current problem is a temporary disruption at the logistics level.
