JPMorgan Quantifies Oil Shock: The global oil supply gap may persist at tens of millions of barrels per day, and policy tools may struggle to fill the gap.

How does JPMorgan assess the geopolitical uncertainty of the oil supply gap?

The global energy market is facing an unprecedented supply shock.

JPMorgan’s Head of Commodity Strategy, Natasha Kaneva, pointed out in her latest report that the current global oil supply gap has reached 16 million barrels per day, and it is expected to maintain a gap of about 10 million barrels per day by April this year. This scale far exceeds any single supply disruption event in history, and the buffer provided by policy tools is far from sufficient to fill this gap.

The uncertainty lies in the duration, while the gap size is certain.

JPMorgan admits in its report that modeling “unprecedented events” such as the Iran war and the blockade of the Strait of Hormuz has reached the limits of traditional analytical frameworks. No historical supply disruption has been completely comparable in scale, geopolitical complexity, and strategic impact.

The greatest uncertainty lies in the duration: the U.S. and Israel have sent mixed signals regarding the duration of the conflict, while Iran itself seems to believe that time is on its side. More importantly, even if hostilities cease, the Strait of Hormuz may not immediately return to normal navigation.

However, the structure of the shock is relatively clear: which barrels are at risk, which capacities can be rerouted or replaced, what the limits of strategic reserves are, and where the boundaries of policy tools lie—these are all quantifiable constraints. The timeline is uncertain, but arithmetic does not lie.

Southeast Asia’s commercial inventories may be significantly depleted.

Disruptions to Middle Eastern flows have quickly translated into direct shortages of crude oil and refined products in Asia, with Southeast Asia particularly exposed due to high reliance on imports and limited domestic refining buffer capacity.

Countries such as Indonesia, Thailand, Sri Lanka, Vietnam, Malaysia, Bangladesh, the Philippines, Myanmar, and Pakistan are likely to need to draw significantly on commercial refined oil inventories—estimated at about 129 million barrels, which may contribute approximately 1 million barrels per day in supply replenishment within months.

Floating storage and sanctions exemptions: limited marginal impact.

Iran holds about 38 million barrels of crude oil and refined product floating reserves, while Russia has about 17 million barrels, allowing the two countries to potentially release about 500,000 barrels per day into the market.

However, the formal lifting of sanctions on Iranian and Russian crude may have limited marginal impact on actual supply—because most of these goods have already been flowing to the market through alternative channels.

The truly significant aspect is that the formal lifting of sanctions may allow India’s large state-owned refineries to engage in procurement more confidently and in greater volumes, thereby replacing the more cautious private buyers.

Taking all these buffering mechanisms into account, JPMorgan believes that policy tools can only buffer the shock but cannot eliminate it. A supply gap of about 10 million barrels per day is likely to persist.

In this context, the only remaining adjustment mechanism in the system is rising prices and the subsequent demand destruction. High oil prices combined with tight physical supply have begun to trigger adjustments across the entire system.

Demand destruction has arrived: chemicals, aviation, and agriculture under pressure.

Under supply constraints, refineries have significantly reduced their operating rates due to raw material scarcity and cost inversion, leading to a significant decline in product output, further amplifying the already tight refined oil market shortages.

In terms of product structure, the impact of the blockade of the Strait of Hormuz is highly concentrated on naphtha, liquefied petroleum gas (LPG), and jet fuel.

The chemical industry has been particularly hard hit, as naphtha and LPG are core raw materials for chemicals like ethylene; currently, about 5% of global ethylene capacity in Japan and South Korea has been shut down.

The aviation sector is also a critical pressure point, with jet fuel costs typically accounting for over 20% of operating expenses. Airlines are cutting routes, with Africa and Europe being particularly vulnerable.

Gasoline and diesel, as the largest demand segments, can be suppressed through coordinated policies, including mandatory work-from-home orders, reduced speed limits, and license plate restrictions. Diesel shortages will also directly impact agriculture, construction, and transportation sectors, putting substantial pressure on fuel supplies for heavy equipment like tractors and excavators.