Strait of Hormuz Blockade: Canceling Sanctions on Russian Oil... or Becoming Long-Term

Three days ago, the United States (and Japan) decided to release their own oil reserves to curb the sharp rise in oil prices caused by the war in Iran and, consequently, the Iranian blockade of the Strait of Hormuz.

Previously, about 18 million barrels of oil and petroleum products were transported through the strait daily.

On the day before, Trump realized that this move could not calm market panic, so he decided to temporarily lift sanctions on Russian oil for a period of one month—only for Russian oil already loaded onto tankers before March 12.

He intended to stabilize oil prices, but... what we see now is still a continuous rise in oil prices, although the rate of increase has slowed down.

As of Friday's closing (stock markets closed until Monday):

  • Brent crude: above $103 per barrel
  • Russian Urals crude: above $91 per barrel

The outcome was never going to be any different.

Moreover, the effects of Trump's measures will soon be completely offset. As long as the Strait of Hormuz remains blocked, oil prices will rise rapidly again.

The reason is the simplest arithmetic. Let's do the math:

How Much Oil Can Trump's Measures "Add" to the Market?

  • U.S. release of reserves: 1.5 million barrels per day
  • Japan's release of reserves: 0.75 million barrels per day
  • Remaining Russian crude on tankers before March 12 (previously heavily purchased by India): about 100 million barrels, which will likely be sold out within the next 10 days.

How Much Oil Is the Market Actually "Short"?

The Strait of Hormuz has been blocked for 13 days (even though Iran still transports about 1.2 million barrels per day through the strait), and the global market has already been short of more than 200 million barrels.

Apart of this shortage has been filled by about 40 million barrels of Russian oil previously purchased by India, some of which barely passed through the strait at the beginning of the conflict, and some have been reduced due to price increases on the demand side.

But even so:

  • Saudi Arabia increased supply to its western ports by 2 million barrels per day
  • The UAE increased supply to the coast of the Oman Gulf by 1.8 million barrels per day (assuming normal operations)

The market is still short of at least 13 million barrels per day.

The oil on those Russian ships can only cover a 10-day gap at most.

The U.S. and Japan's released reserves can only cover an additional 1 to 2 days of the gap during these 10 days.

After that, even if the U.S. and Japan continue to release reserves, the market will still be short of at least 11 million barrels per day.

This means:

At most, within one or two weeks (i.e., early April), the global market will need new large-scale oil supplies.

But even if Russia fully opens its exports, it cannot provide much extra oil.

Before February 28, we were already selling oil in large quantities, and the actual additional export volume will not exceed 1 million barrels per day—enough to just fill a small gap in the global market.

And there are no other idle capacities left in the global market.

More precisely, Saudi Arabia still has (estimated 3 to 4 million barrels per day), but... it can only be shipped from internal ports in the Persian Gulf, which is equivalent to nothing under the current situation.

Conclusion

I have reasons to doubt:

Canceling sanctions on Russian oil will not be just for one month, but become long-term.

Even so, it can only slightly ease the upward trend of oil prices, not reverse it.

By the way, in this context, Denmark's Energy Minister Lars Olof has already called on citizens: don't drive private cars unless necessary.

This is just the beginning.

If the crisis continues, it may repeat the 1973 oil crisis: in that year, Persian Gulf countries imposed an oil embargo on the West, stopping oil supplies, causing oil prices to soar.

This time, if the war drags into April, the same scene could happen again.

Original: toutiao.com/article/7617362899656245801/

Disclaimer: This article represents the personal views of the author.