This is getting serious

[dan_s]

Geostrategy
BLACKLIGHT RESEARCH

At 02:19 UTC this morning, a container ship was struck by a projectile 35 nautical miles northwest of Jebel Ali. It’s the third boxship hit since the war began and the latest in a flurry of five vessel attacks in the past 24 hours, per UKMTO. Two oil tankers were hit overnight at Umm Qasr near Basra, killing one crew member. Maersk has now suspended operations at Oman's Port of Salalah. The IRGC's naval commander, Admiral Tangsiri, stated yesterday that every vessel intending to transit Hormuz must obtain Iran's permission or face attack. That condition persisted through the night and shows no sign of reversing at the time of writing.

Against this backdrop, the IEA published its March Oil Market Report at 5am ET, less than one day after member countries unanimously agreed to release 400 million barrels from emergency reserves, the largest coordinated stock draw in the Agency's history. The US Department of Energy confirmed overnight that 172 million barrels of SPR crude will begin flowing next week over approximately 120 days. The solidarity is real and the volumes are substantial. But solidarity does not reopen the Strait. Four hundred million barrels released over months does not replace 20 million barrels per day of crude and product flow lost now. The arithmetic of the standstill overwhelms the arithmetic of the stand-together.

The IEA's numbers frame the scale. Global oil supply is projected to plunge 8 million b/d in March to 98.8 million b/d, its lowest since early 2022. At least 10 million b/d of crude and condensate production has been curtailed across Gulf states as storage fills to capacity and export outlets vanish. Iraq, with minimal storage and no pipeline bypass, has already shut in roughly 3 mb/d, more than two-thirds of its pre-crisis output. Kuwait, entirely dependent on Hormuz for exports, began curbing production on March 6 with only 14 days of storage when the conflict began. Qatar shut its entire LNG and condensate complex at Ras Laffan after drone strikes and has stated it will not restart until a full ceasefire. Even Saudi Arabia, which has pushed its East-West pipeline to a record 5.9 million b/d of exports from Yanbu (versus a 2025 average of 1.7 million b/d), is now cutting heavier offshore grades as available storage peaks.

The demand side carries its own underappreciated dislocations. The IEA cut its 2026 global demand growth forecast by 210 thousand b/d to 640 thousand b/d. Middle Eastern jet fuel demand for March has been slashed 50% (roughly 270 thousand b/d) as flight cancellations at Dubai, Abu Dhabi, Kuwait, and Doha approach 100%. The region consumed 540 thousand b/d of jet/kerosene last year, representing 7% of the global total. This is the invisible offset that most investors have not yet quantified: the war is already simultaneously destroying supply and demand, though supply destruction dwarfs demand destruction by an order of magnitude. Jet fuel NW Europe CIF cargoes settled yesterday at $1,505.50 per mt (+$108.75), according to Bloomberg. Cracks in all three major refining centers have tripled from February levels into a $40–$80 per bbl range. The ICE gasoil–Brent M1 crack is $39 per bbl this morning.

Perhaps the most telling signal sits in the physical crude market. Dubai crude closed at $119 on March 11, or nearly $30 above WTI Cushing and at a record premium to North Sea Dated that has flipped from a $2.60 discount last month to a $17 premium. The Dubai M1–M3 spread has exploded to $25.65 per bbl backwardation. This is the market screaming that sour crude East of Suez is not available at any recently recognizable price. The $119 level is also, curiously, the same price that WTI touched on its Sunday night spike on March 8 before retreating. The convergence may be coincidence, but the level appears to represent where the market first attempted to price the full severity of the disruption before retreating on hopes of a diplomatic solution that has not materialized.

On LPG, the humanitarian dimension deserves attention. India imports the equivalent of nearly two-thirds of its 1.1 million b/d LPG consumption through Hormuz, overwhelmingly for cooking. Today’s IEA report estimates a 200 thousand b/d (17%) cut to Indian LPG demand in both March and April, because it is physically unavailable and the nearest alternative supplier, the United States, is five to six weeks away by sea.

East Daley Analytics data suggest 450 thousand b/d of spare US LPG export capacity exists in PADD 3, and at least two VLGCs have already rerouted toward US Gulf terminals. Propane NW Europe CIF settled at $780 (+$34.25) yesterday. This repricing is still in its early stages, by our estimation.

The coordinated stock release is a bridge. Bridges are valuable. The 1.2 billion barrels of government oil held by IEA members, plus 600 million barrels of obligated industry stocks, provide a meaningful buffer. They are worth roughly 27 days of OECD forward demand at the government level alone.

But a bridge must reach the other bank, and the other bank is a functioning Strait of Hormuz with insurance coverage, crew willingness, crew safety, and a traffic management scheme that does not yet exist.

The International Transport Workers' Federation has designated the area a Warlike Operations Area, triggering double wages and the right of refusal. As we have noted before, P&I clubs cancelled war risk coverage on 72-hour notice in early March. VLCC rates from the Gulf to Asia are still above $14 per bbl, six times the five-year average, equivalent to $490,000 per day. France has pledged an aircraft carrier strike group. The US is drafting escort plans. These are weeks away from operational capacity.

The shut-in production itself will not snap back. Restarting wells that were shut rapidly risks reservoir damage. Today’s IEA report brings to a broader audience a crucial reality we have spotlighted in our own analyses over the past week: some fields will require weeks and, in complex cases, months to return to pre-crisis rates.

These are the facts. International oil companies and service firms have evacuated staff. Well workover equipment must be sourced and moved back into the region. Meanwhile, by the IEA’s count, 238 laden oil tankers holding 186 million barrels sit idled inside the Gulf as of yesterday, roughly 40 VLCCs' worth of crude that built up in the first days of the crisis and now acts as a modest buffer when flows eventually resume, but also as a physical testament to the standstill.

For institutional portfolios, the signal is in the product cracks and the Dubai basis, not in headline Brent. Brent at $92 (now over $103) has partially corrected from its $120 spike but remains vulnerable and, more likely than not, will soon post new highs. The product complex remains the leader of price discovery. Jet fuel and diesel cracks are at multi-year highs, NW European refining margins are at $22/bbl, and Singapore sweet cracking margins have quadrupled. These prices signal middle distillate supply from the Gulf does not return quickly. Europe sources 60% of its jet fuel imports (roughly 280 thousand b/d) from the Middle East, mostly through Hormuz, and has no ready Atlantic Basin substitute. Refiners globally who can secure crude and maximize middle distillate yield face the best margin environment since the immediate aftermath of Russia's invasion of Ukraine. The standstill may ease. Until it does, the product market is where value resides.
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Bottomline: If the Strait of Hormuz remains closed into April, WTI oil price will set a new record high. The previous high oil price was $147/bbl in mid-2008.

[dan_s]

March 12 Macro Voices: https://macrovoices.podbean.com/e/macrovoices-523-jim-bianco-energy-fed-economy-in-the-wake-of-iran-conflict/