Original author: Ye Zhen

Original source: Wall Street View

The Strait of Hormuz is nearly factually blocked, and the global energy market is being pushed towards what could be the most severe energy crisis since the 1970s!

On Monday opening, oil prices surged directly.

WTI crude futures rose by as much as 22%, breaking through the $110 mark; Brent crude futures also surged 20% to $111.04 per barrel. The subsequent gains retreated slightly.

Meanwhile, due to disrupted oil exports and rapidly dwindling storage space, an increasing number of major oil-producing countries in the Middle East are forced to announce production cuts.

According to previous mentions by Wall Street View, the production cut trend in the Gulf region is spreading rapidly.

Kuwait has officially announced force majeure and significantly reduced production; the UAE has also started to adjust offshore production levels to alleviate storage pressure.

Goldman Sachs directly "overturned" its previous optimistic assessment, warning that: the actual flow in the Strait of Hormuz is declining far beyond expectations. If recovery does not occur in the coming days, the upward risk facing oil prices will clearly expand.

More critically, the intensity of this crisis has already far exceeded initial assessments from all parties.

At the onset of the attacks by Israel and the United States, Gulf country officials generally believed that the situation would still be controllable and limited escalation, similar to past conflicts.

But this time, a new variable has emerged that has never occurred in history —

Qatar has become the world's largest exporter of liquefied natural gas.

When its core facilities ceased production, it equated to nearly 20% of the global LNG supply being suddenly cut off. The shock to the energy sector thus rapidly spread from the oil market to the natural gas market.

The result is: natural gas prices in Europe and Asia have skyrocketed simultaneously.

Next, from Chinese chemical manufacturing to the Asian power industry, a series of chain reactions may face.

The Hormuz crisis exceeds everyone's expectations

The speed of crisis escalation has caught the market off guard, largely due to initial misjudgments from all parties.

According to The Wall Street Journal, in the weeks leading up to the attacks by Israel and the United States, Gulf oil officials were assured by the US that even if retaliation occurred, the targets would only be US military bases.

In other words, Iran would not attack the energy facilities of Gulf countries nor attempt to block the Strait of Hormuz.

After all, during the 12-day bombing of Iran by Israel and the United States last June, the Strait of Hormuz remained open.

Therefore, when the attacks actually occurred, most officials still held an optimistic attitude.

Reports indicate that some officials even forwarded a meme of Mr. Bean giving the middle finger in chat groups, comparing Iran's potential retaliation actions to this clumsy comedic character.

OPEC held a meeting the Sunday after the attacks, focusing on whether to increase production, and few seriously discussed the situation in Iran.

Until the situation quickly spiraled out of control.

A senior Saudi official later admitted:

“We really did not expect Iran to take action against the entire Gulf, completely disregarding our relationship.”

Subsequently, a recording allegedly from an Iranian Navy officer notifying ships not to enter the Strait of Hormuz rapidly circulated in industry WhatsApp groups.

Oil tanker traffic plummeted immediately, and market sentiment turned to panic.

Tanks in emergency, production cuts spread

The Strait of Hormuz is nearly blocked, which soon triggered a chain reaction among oil-producing countries in the Middle East.

The core reason is simple: storage space is nearly full.

Iraq was the first to be forced to limit production due to storage tanks nearing saturation, cutting output by more than two-thirds.

Subsequently, Kuwait Oil Company officially announced force majeure.

According to Bloomberg citing informed sources, Kuwait's production cut has expanded from about 100,000 barrels per day on Saturday to nearly 300,000 barrels per day, with further adjustments depending on storage levels and the situation in the strait.

In January of this year, Kuwait's daily production was about 2.57 million barrels, and the only export route is the Strait of Hormuz. If the strait remains blocked, its storage capacity could be exhausted in just a few weeks or even days.

Abu Dhabi National Oil Company (Adnoc) also announced on Saturday that it is “adjusting offshore production levels to meet storage needs.”

As the third-largest oil producer in OPEC, the UAE's daily production exceeded 3.5 million barrels in January.

Although Adnoc operates a pipeline leading to Fujairah Port, with a daily transport capacity of about 1.5 million barrels that can bypass the Strait of Hormuz to maintain some exports, this route cannot fully replace the transport capacity of the strait.

J.P. Morgan estimates that if the strait is still not reopened by this Friday:

• The region's daily production decline could exceed 4 million barrels
• By the end of March, the decline could approach 9 million barrels

This is equivalent to nearly one-tenth of global demand.

Saudi Arabia has already started to reroute some crude oil exports to Yanbu Port along the Red Sea coast.

However, Goldman Sachs tracking data shows that the net redirected flow through pipelines and alternative ports has only increased by about 900,000 barrels per day over the past four days, far below the theoretical limit of 3.6 million barrels per day.

Moreover, attacks on the storage facilities at Fujairah Port and shortages of marine fuel have further compressed alternative export capacity.

Qatar LNG shutdown: the "new variable" of the crisis

Unlike any previous Middle Eastern energy conflict:

Qatar has become the world's largest LNG exporter.

The reliance formed over the past 20 years has been magnified in this crisis.

Following the Iranian drone attacks on Qatar's Ras Laffan gas complex, Qatar Energy Company announced on March 2 to halt LNG production at the facility and declared force majeure.

Ras Laffan has an annual capacity of 77 million tons, accounting for about 20% of global LNG supply.

HSBC Global Research noted that the shutdown of the facility is not solely due to the blockade of the strait.

Due to the inability to transport goods out, the on-site storage capacity is only about 1 million tons, less than five days of normal loading capacity. In other words, Qatar Energy Company effectively had no choice but to cease production.

Market response was very direct.

European benchmark gas prices (TTF) surged approximately 70% over two trading days; Asian spot LNG prices (JKM) rose by about 50%.

Both reached new highs in nearly three years.

LNG tankers even staged a "bidding war" on the high seas.

A LNG vessel named Clean Mistral suddenly turned 90 degrees towards Asia while en route to Spain, and then multiple vessels made similar adjustments.

More troublesome is that restarting also takes time.

Reuters cites industry estimates that:

• Restarting Ras Laffan itself will take about two weeks
• Restoring full production will take another two weeks

HSBC calculates:

• A one-month shutdown will result in a loss of about 6.8 million tons of LNG
• A three-month shutdown will result in a loss of approximately 20.5 million tons

Considering that Trump has previously indicated that the war with Iran is expected to last four to five weeks, the mainstream scenario assumption for supply losses is already close to 8 million tons.

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

Although the United States is the largest LNG exporter in the world, spare capacity is estimated to be only about 5%; Norway stated its gas production is nearing full capacity; Australia's spare capacity is also limited.

Goldman Sachs "tears up the report": oil price upward risks rapidly expand

Goldman Sachs' commodity research team released a report on March 6 that almost openly overturned previous predictions.

Goldman Sachs chief oil strategist Daan Struyven previously set the baseline path as:

• Flow in the Strait of Hormuz to remain at around 15% for the next five days
• Then recover to 70% over the next two weeks
• Then restore to 100% in another two weeks

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

But reality quickly broke through these assumptions.

Goldman Sachs' latest estimate:

Flow in the Strait of Hormuz has already dropped by about 90%, meaning a reduction of about 18 million barrels per day.

The actual redirected flow through alternative pipelines is only one-fourth of the theoretical limit.

Meanwhile, most shipowners are now choosing to wait and see.

What truly prevents ships from passing is not the freight rates, but the physical safety risk — as long as the physical risks exist, no ship will pass, no matter how high the freight costs.

Goldman Sachs explicitly stated in the report:

If there are no signs of a solution this week, oil prices are likely to break $100 next week.

If the flow in the strait remains sluggish throughout March, oil prices (especially refined products) may exceed the historical peaks of 2008 and 2022.

The report also emphasized:

The upward risks to oil prices are “rapidly expanding.”

Energy historian Daniel Yergin also warned:

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

America relatively insulated, but the impact is still spreading

US Energy Secretary Chris Wright stated on Fox News on Sunday that energy “will soon flow again” through the Strait of Hormuz and believes the rise in oil prices is mainly due to market concerns about the duration of the conflict.

Trump stated aboard Air Force One that he is not worried about gasoline prices and expects oil prices to "quickly drop" after the war ends.

Compared to the 1970s, the US energy structure is indeed more resilient today.

The oil and gas industry accounts for a lower proportion of GDP, and the US has become a major energy exporter.

But the problem is —

Oil prices are globally priced.

The rise in retail gasoline and diesel prices will still have a real impact on US consumers.

Airline executives have already warned that the surge in jet fuel prices will compress quarterly profits and may push up ticket prices.

Meanwhile, some measures from the US government conflict with existing policies.

In order to alleviate the impact of disruption in Gulf supplies, the Treasury Department has relaxed some sanctions on Russian crude oil to enable countries like India to seek alternative supplies.

This forms a clear contradiction to the previously attempted policy of isolating the Russian oil industry.

According to analyses from HSBC and Morgan Stanley, this energy shock presents strikingly different impacts in Eurasia.

For the Chinese chemical industry, to some extent, it is an opportunity.

The surge in European natural gas prices has raised production costs for local chemical companies. HSBC Qianhai Securities pointed out that this will provide Chinese chemical companies (in areas such as MDI, TDI, vitamins, etc.) with market share expansion and product premium space.

In Asia, however, the situation is more severe —

The market is facing a true energy supply shortage.

Morgan Stanley pointed out that the Asian power and gas industry relies on Middle Eastern LNG for about 20%, with India, Thailand, and the Philippines particularly exposed.

In response to fuel shortages and rising costs, some Asian countries have begun to turn back to coal-fired power to maintain grid stability.

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