If You Don't Guess About Oil Prices.....
- 10.03.2026, 12:01
There is no shortage on the foreseeable horizon, even in theory.
I will present some thoughts on the impact of the war in Iran on the physical supply of oil on the world market. I emphasize: we are talking about physical volumes only!!! No one knows what will happen to prices. I will not touch on LPG, it is a big separate topic.
There are two mechanics of the impact of the war on the world oil supply. The first is related to the very likely destruction of Iran's oil production infrastructure and its complete or partial withdrawal from the oil market for several months to many years. The second is the temporary closure of the Strait of Hormuz and the temporary cessation of exports of third-country oil that cannot be sent to the world market except through the Strait, but whose exports will largely recover once the Strait is reopened.
In 2025, Iran exported oil in the range of 1.5-1.7 million barrels per day (mbd). It has been producing more, but domestic consumption there is not insignificant either. At the same time, in 2025, the world market has a marked excess of oil production over consumption. Some talk about 1 mbd, others barely 2+. The reality is rather in the range of 1.1-1.4 mbd of excess oil, but it is not exact.
In these conditions, the disappearance of Iran alone from the oil market cannot produce any global unbalance of the market. The overhang of supply over demand, which was purchased into Chinese reserves all through 2025, will disappear. Perhaps there will be a slight deficit of 0.2-0.4 mbd, which corresponds to the values observed in 2023-2024, which will be quickly leveled under the influence of market incentives.
In the question of short-term effects of the war, it is necessary to compare the existing world reserves of already produced commercial oil stored in strategic and commercial reserves with the temporarily falling volumes of the Gulf. World reserves today are 6-8 billion barrels, as one counts. Last year alone, those reserves grew by 400 million barrels or even 700 million barrels.
If the war ended today, the loss of world oil production outside Iran would hardly be much different from zero. For now, production largely continues, with oil piling up in the Gulf's storage facilities. If normal shipping resumed, the resulting surpluses and tanker jams would dissipate in a few weeks without serious loss to annual production. If the war lasts much longer the situation will change markedly. All available storage and alternative export routes will be full, and production will have to be cut by about 5 mbd, which is simply physically impossible to export except through the strait. All right, let it be 8 mbd.
Even with these assumptions, the drop-off is no more than 150-250 million barrels per month. That is, it would take 2-4 months of complete blockade of the Strait of Hormuz just to burn the additional oil reserves created in 2025.
But such reasoning would be justified if we had not observed numerous rapid adaptations of Russian, Iranian and Venezuelan oil exports to the changing situation in recent years. Even in the last week of the most acute phase of hostilities, some tankers continued to pass the Strait of Hormuz. It is difficult to say how many - it is difficult to say, they turn off their transponders, but we are talking about plus or minus 10 tankers a day against 110-130 usually. And I do not understand why this figure will not grow in the near future.
Operating cost of production of a barrel in the Persian Gulf is very low, in some places even below 1 dollar per barrel. Let it be 5 with a large margin. This means that in the conditions of complete flooding of oil storage facilities in the Gulf, with a shortage of tankers producers will be theoretically profitable to sell oil at the port of shipment at any price > 5 dollars per barrel. In other words, at an oil price of 110, a tanker that continues to sail through the Strait of Hormuz, in an efficient market, could in theory make $100 on each barrel carried.
The cost of a new modern tanker fresh from the shipyard is $60-120 per barrel of capacity. Older ones can be as low as 20 dollars per barrel of tonnage. I.e. once sailed through the strait - bought one new tanker or 5 old ones. The real risk of being hit is low, mostly cheap old ships will sail. There are a lot of empty tankers on the roadstead outside the gulf. You don't have to carry oil far, bought in the gulf for 10, sold on the roadstead for 100. Got 90 million dollars profit from the tanker in a week at the most. Sailed for the next one.
It is very difficult for me to imagine a situation in which the war lasts several months, oil prices are over 100 dollars, and no one sails through the Strait of Hormuz. It's just economically impossible. Even before I was very skeptical about Iran's threats to close the Strait, but today the limitations of such threats are obvious.
I will finish where I started. Oil prices are unpredictable and in the moment depend more on the psychology of speculators than on the ratio of supply and demand for physical oil. However, if we do not guess about prices, but simply assess the probability of a real physical shortage of oil on the world market, then such a shortage is not even in theory on the foreseeable horizon.
Dmitry Nekrasov, Facebook