Oil pipelines around the world are running dry, depleting oil at unprecedented rates as the ongoing war with Iran has severely disrupted the flow of crude from the Persian Gulf, rapidly eroding the buffer that usually protects markets from supply shocks.The sharp decline in reserves has caused growing concern in governments and energy markets, with the system becoming increasingly exposed due to the loss of more than a billion barrels of supply in almost two months following the closure of the Strait of Hormuz. Analysts cited by Bloomberg warn that the thin cushion not only increases the risk of price spikes and shortages in the near term, but also increases vulnerability beyond the end of the conflict.Global oil inventories fell by about 4.8 million barrels per day between March 1 and April 25, data from Morgan Stanley shows. This represents a sharper decline than any previous quarterly decline recorded in International Energy Agency data. Crude oil accounted for about 60% of the decline, while refined products made up the rest of the decline.
Stocks are running out amid Middle East heat
Experts say oil systems cannot operate without maintaining minimum stock levels, meaning what is called an “operational minimum” is reached long before the inventory reaches zero.“Inventories are acting as a shock absorber to the global oil system,” said Natasha Kanaeva, head of global commodity research at JPMorgan Chase & Co. He added, “Not every barrel can be pulled.”JPMorgan has warned that if the Strait of Hormuz remains closed the OECD’s reserves could reach “operational stress levels” as early as next month, and fall to “operational minimum” levels by September.Goldman Sachs Group Inc. has seen the pace of declines slow in recent days, citing weak demand from China that has left more supply available globally.However, according to the bank, visible global oil stocks are already near their lowest level since 2018.Asia is facing increasing pressureThe most immediate tensions are emerging in fuel-import-dependent Asian countries. Traders consider Indonesia, Vietnam, Pakistan and the Philippines most at risk, with potential shortages within a month.According to Bloomberg report, there is currently better supply in big economies like China.In contrast, Asia-Pacific reserves outside China have fallen by a massive 70 million barrels since the conflict began, according to Kairos co-founder Antoine Half.Japan and India are now at seasonal lows of at least 10 years, with stocks down 50% and 10% respectively. The supply of naphtha and liquefied petroleum gas, key inputs for petrochemicals, has also become tight.Some governments believe that reserves remain sufficient. Pakistan’s petroleum minister said in late April that the country had about 20 days of commercial reserves of refined products, while India’s oil ministry said on May 3 that refinery crude inventories were adequate, although refiners privately acknowledged steep declines.Frederick Lasserre, head of research at energy trader Gunvor Group, told Bloomberg that gasoline shortages are likely to emerge first in Asia, with Pakistan, Indonesia and the Philippines in the most vulnerable positions.He said if the Strait of Hormuz remains closed into early June, parts of Asia could face a broader economic shock due to gasoil shortages, while Europe could have a slightly longer window before serious disruption.US list falls below historical normsThe United States, which is increasingly acting as the supplier of last resort, has also seen reserves decline below historical averages due to strong exports.US crude oil inventories, including the Strategic Petroleum Reserve, have declined for four consecutive weeks. Distillate stocks are at their lowest level since 2005, while gasoline inventories are near seasonal lows seen in 2014.Although US producers are increasing production, officials have indicated that inventories are still likely to decline in the near term.Europe has run out of jet fuelIn Europe, jet fuel has emerged as the most limited product.Stock at the Amsterdam-Rotterdam-Antwerp hub has fallen by a third since the war began, according to Insights Global, to a six-year low.“Since February, we have seen a steady decline in jet fuel stocks,” said Lars van Wageningen, research and consulting manager at Insights Global. Competitive demand from Asia and Australia is further tightening availability, he said.Although short-term supplies remain adequate, he warned that stocks could reach critical levels within five months as summer demand increases. Britain, Germany and France are seen to be most at risk due to high consumption and limited production.Price rise and economic riskThe conflict has already sent crude oil and fuel prices soaring, increasing inflationary pressures and raising the risk of a global economic recession.Global oil demand has declined due to both higher prices and supply disruptions. However, analysts say further reductions in demand may be required if inventory declines continue.“A lot of inventory and excess capacity is already gone,” said Chevron Corp Chief Financial Officer Eimear Bonner. “We’re going to start to see some import-dependent countries potentially start to face severe shortages as we get into the June-July time frame.”
Strategic reserves are being deployed
Governments have already pledged to release about 400 million barrels from emergency reserves coordinated by the International Energy Agency.Balancing market stability with the preservation of strategic reserves, the United States has so far used 79.7 million barrels of its pledged 172 million barrels. If fully deployed the US strategic petroleum reserve could fall to its lowest level since 1982.Germany has begun reissuing previously released crude oil and jet fuel and hinted at further action if shortages worsen.However, policymakers face a dilemma: releasing more reserves may temporarily lower prices but further weakens the global security buffer.Analysts expect inventory drawdown to continue in the coming months, followed by a restocking phase once the situation stabilizes.“We expect this stocking environment to continue over the next several months and ultimately lead to a prolonged restocking event,” said Willie Chiang, chief executive officer of Plains All American Pipeline LP.He said that after the conflict, countries could rebuild strategic reserves above pre-war levels, potentially adding a new layer of demand pressure to global oil markets.
