Oil shipments transiting the Strait of Hormuz have dropped precipitously as the Middle East conflict has intensified, according to a new tracker note from Goldman Sachs. Based on counts of vessels, the bank calculates that average daily flows through the strait are down 97% from their normal levels, with recent throughput holding at roughly 0.6 million barrels per day.
The collapse in Hormuz traffic has produced a much larger contraction in exports across the Persian Gulf region. Goldman Sachs estimates the total reduction in flows from the region has reached about 16 million barrels per day, even after accounting for partial rerouting of cargoes through alternative ports such as Yanbu in Saudi Arabia and Fujairah in the United Arab Emirates.
Supply shortfalls are not limited to transit disruptions. Production and refining outages are compounding the shock. The International Energy Agency estimates at least 10 million barrels per day of crude and condensate production losses as of March 10, while refinery disruptions in the Middle East have climbed to about 2.0 million barrels per day. The latter figure follows a precautionary halt at the UAE's Ruwais refinery.
Policymakers are beginning to act in response to the disruption, though such measures are expected to blunt only part of the impact. IEA member countries have agreed to make 400 million barrels of strategic petroleum reserves available to the market, a stockpile that implies a potential release pace of roughly 3.3 million barrels per day if drawn down continuously.
Goldman Sachs lays out a more specific working assumption for reserve use. The bank assumes that participants will release 213 million barrels of SPR at an average speed of 2.4 million barrels per day over the next 90 days if Strait of Hormuz flows start to recover from March 21st. Goldman notes this assumed pace is faster than the peak monthly 1.4 million barrels per day observed in 2022, reflecting the larger magnitude of the current shock.
Even with coordinated releases from global reserves and other policy measures, Goldman estimates these actions could reduce the impact on global commercial inventories by roughly half, rather than fully offsetting the losses.
Markets are already pricing in an extended interruption. Brent crude has moved sharply higher, rising from just under $90 to above $100 per barrel since earlier in the week. Options markets currently imply about a 15% probability that Brent contracts will expire above $100 in the coming months.
Forecasting the conflict's duration, prediction markets indicate the probability that the war ends in March has fallen to about 19%. The most likely outcome in those markets still points to a resolution occurring between early April and mid-May, though that scenario remains only the leading probability rather than a certainty.
Summary
Goldman Sachs' tracker shows a near-total collapse of oil flows through the Strait of Hormuz, with regional export reductions estimated at roughly 16 million barrels per day. Production and refinery outages add to the shortage, while strategic reserve releases are expected to mitigate only part of the shock. Energy markets have reacted with a significant rise in Brent prices and increased odds of sustained high prices.
Key points
- Strait of Hormuz flows are down 97% from normal levels, stabilizing around 0.6 million barrels per day.
- Total Persian Gulf flow reductions are estimated at about 16 million barrels per day, with partial rerouting to Yanbu and Fujairah.
- IEA reports at least 10 million barrels per day in production and condensate losses as of March 10, and roughly 2.0 million barrels per day of refinery disruptions after a precautionary halt at Ruwais.
Risks and uncertainties
- Duration of the conflict - prediction markets show the likelihood of a March end has fallen to about 19%, and markets price a continued disruption into spring months.
- Incomplete offset from policy measures - coordinated SPR releases and other actions are expected to reduce the inventory hit by roughly half, but not to fully replace lost flows.
- Persistent production and refining outages - ongoing losses at the production and refinery level raise the possibility of continued supply tightness and market volatility.
Conclusion
The combination of the near cessation of Strait of Hormuz transit, extensive regional export shortfalls, and concurrent production and refinery outages has created a substantial supply shock. While coordinated releases from strategic reserves will provide relief, current estimates suggest they will only partially offset the damage to global inventories. Energy markets have already reflected these strains in higher prices and option-implied probabilities for sustained elevated Brent levels.