A hypothetical blockade of the Strait of Hormuz would drain global crude inventories to a critical "operational minimum" by early May, according to a new report from JP Morgan, triggering a supply crisis where high prices are forced to destroy demand.
"The inventory buffer is being consumed rapidly, and the market is not far from its 'operational minimum' — it may bottom out in May," Natasha Kaneva, a commodity analyst at JP Morgan, wrote in a report published in early April. The analysis models a 14 million barrel-per-day effective supply loss from a halt in transit through the critical chokepoint.
The report defines the operational minimum for OECD commercial inventories as 842 million barrels, a level sufficient to cover approximately 30 days of forward demand from refineries. A drop below this point would severely strain refinery scheduling, logistics, and market liquidity, even though a technical minimum of 24 days of cover is theoretically possible.
The simulation shows OECD commercial crude stocks, already fragile at 968 million barrels in February 2022, would deplete by 166 million barrels in April and a further 67 million barrels in early May before hitting the critical threshold. "Once inventories approach this threshold, price, rather than inventory itself, will become the market's main balancing mechanism," Kaneva said.
Supply Recovery in Three Phases
JP Morgan outlines a multi-stage timeline for supply to return to the market even after the strait reopens, a process that could take four months to approach pre-disruption levels.
Phase 1 (Weeks 1-3): A cautious restart would see about 6.3 million barrels per day, or roughly half of the disrupted production, come back online. Producers and shippers would move tentatively, with supply increasing by 1.7 million b/d in the first week, followed by 2.3 million b/d in each of the subsequent two weeks as confidence returns.
Phase 2 (Weeks 4-8): By the end of the second month, supply from the Gulf is projected to reach 29.3 million b/d. Recovery would be uneven. Saudi Arabia and the UAE are expected to restore nearly all production, while Iraq and Kuwait would lag at around 80 percent. Qatar's recovery would be limited to just 60 percent due to significant damage to its Ras Laffan facilities, impacting associated liquid products like condensate and NGLs.
Phase 3 (Months 3-4): Supply would reach 31 million b/d in the third month and normalize to approximately 99 percent of pre-war levels by the end of the fourth month. However, long-tail risks remain. Qatar's full restoration is estimated to take three to five years. Iran's output is also expected to remain about 200,000 b/d below previous levels due to damage to its integrated gas and liquids infrastructure at the South Pars field.
Inventory Rebuilding Could Take Another Four Months
Once supply normalizes, the process of rebuilding depleted inventories would begin. JP Morgan estimates that it would take about two months after the strait reopens for OECD commercial stocks to start accumulating again.
To return to the 30-day forward cover level, the market would need to add between 150 million and 200 million barrels back into storage. Assuming a replenishment rate of 1.0 million to 1.5 million barrels per day (30 million to 45 million barrels per month), the full inventory rebuilding cycle would last approximately four months. This implies that even with a swift resolution to the hypothetical conflict, the global oil market may not return to a state of normalcy for more than half a year.
This article is for informational purposes only and does not constitute investment advice.
