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JP Morgan expects crude oil supply to drop by 12 million barrels per day as a result of the tanker ban.
JPMorgan stated in a Friday note that the crude oil supply cut is on track to hit 12 million barrels of oil per day. This will intensify deficits on physical markets, as tanker movement through a key Middle Eastern waterway faces a two-week interruption. The bank stated that "Commercial Tanker Traffic remains extremely Limited, with most vessels currently Iranian and likely heading to China." It added that although cargoes departing the Gulf prior to the shutdown are still arriving but new shipments have mostly stopped. Supplies to Asia could run out next week while Europe bound flows are likely stop next week. After the conflict, major Gulf producers started to reduce production, disrupting the 'Strait of Hormuz', where one-fifth of the global oil supply passes. An Indian government official confirmed that a tanker with an Indian flag, carrying gasoline from India to Africa, had exited the Strait of Hormuz on Friday. The U.S. also issued a 30-day license allowing countries to buy stranded Russian petroleum and oil products. JPMorgan reported that "Production shutdowns have already reached approximately 6.5 million bpd - roughly 1 million above our previous estimates." The bank stated that the global supply of diesel, jet fuel, LPG and naphtha is approximately 7 million bpd less than demand. JPMorgan noted that approximately 5 million barrels per day of refined products transited the affected waterway. This was a major artery for middle distillates and feedstocks used in petrochemicals. The bank said that Europe is particularly vulnerable, since the region relies heavily on Middle Eastern jet fuel and diesel after its ban on Russian imports. The bank stated that approximately 2,000,000 bpd Middle Eastern refining capability is effectively offline because of export restrictions and infrastructure attacks. This tightens global supply balances immediately. JP Morgan warned that while refiners may increase their operations in the U.S. and Europe to take advantage of'strong margins', they will most likely see higher prices for products and greater margins due to limited spare capacity. Anmol Choubey, Bengaluru (Reporting) Nick Zieminski (Editing).
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The biggest global oil supply disruptions ever
International Energy Agency stated that the closing of the Strait of Hormuz caused the biggest disruption in global oil markets history. The agency said supply is expected to drop by around 8 million barrels per day or 8% in March. In response, the member countries of the agency agreed to release 400 million barrels from their strategic stockpiles in order to stabilize oil prices and compensate Middle East production loss. Here's a list of previous oil supply disruptions: The 1973-1974 Arab Oil Embargo The Arab oil embargo was initiated by the Yom Kippur War which began in October '6, '1973, with coordinated attacks against Israel. Arab producers, acting through the Organization of Arab Petroleum Exporting Countries, ordered a 5% immediate reduction in production. This was followed by a further 5% monthly reduction. This was done to put pressure on Western nations in order to get Israel to withdraw its occupation of Arab lands since 1967's Six-Day War. According to declassified documents from the U.S. National Security Council prepared for President Richard Nixon, the embargo was estimated to leave the United States with a shortage of 2-3 million barrels a day. The total shortage in embargoed countries is around 4.5 millions bpd. According to U.S. Government records, OAPEC announced its embargo against the U.S. on October 17, 1973. It remained in effect until March 1974. Crude oil prices almost quadrupled from $2.90 a barrel prior to the embargo, to $11.65 per barrel by January 1974. The U.S. Government prepared fuel rationing programs, ordered industries switch from oil to coal, pushed to increase domestic production, and advanced emergency legislation. In 1974, the crisis led to oil-consuming countries establishing the International Energy Agency to coordinate their responses to supply interruptions. The Iranian Revolution of 1978-1979 The political turmoil in Iran led to the fall of Shah Mohammad Reza Pahlavi’s government and Ayatollah Khamooni's rise. Iranian oil production dropped sharply from 4.8 million barrels per day (bpd) to 7% of the global supply by January 1979. The oil prices started to increase rapidly around mid-1979. They?more than halved between April 1979 - April 1980 due to fears of more disruptions and speculation, as well as strong global demand. The crisis was a major factor in rising inflation rates in the U.S. Paul Volcker became chairman of the Federal Reserve in August 1979. The 'central bank' adopted aggressive monetary tightening measures to combat inflation. These policies ended the stagflation cycle, but combined with the oil crisis, they pushed the U.S. into a severe economic recession. The Gulf Crisis of 1990-1991 The Iraqi invasion of Kuwait, and the embargo imposed by the United Nations on Iraqi and Kuwaiti crude oil, removed 4.3 million barrels per day from global markets. Before the war, Iraq exported about 2.7 million barrels per day (bpd) and produced about 1.8 millions bpd. Together, these two countries accounted for almost a third Gulf oil production and exports. Brent crude prices rose from $17 per barrel to $36 in October 1990. Prices then fell after the end of the war in February 1991. The IEA activated their Co-ordinated Energy Emergency Response Contingency plan, preparing 2.5 million bpd to be available on the market within 15 days. This included 2 million bpd of emergency stock releases, 400,000 bpd of demand restraints, and 100,000 bpd resulting from fuel switching or spare production capacity. Hurricane Katrina slammed the U.S. Gulf Coast on August 5, 2005, halting large amounts of offshore production. According to U.S. Government data, at the height of the disruption, on August 29, 2005 about 1.38'million barrels of oil production per day was shut in. The production losses decreased gradually but remained at 840,000 bpd on September 16, 2005. Hurricane Rita was the next storm to hit in September 2005, and combined storm disruptions shut down up to 1.53 million bpd on September 26th. The Department of Energy in the United States has loaned 9.1 million barrels of crude oil from its Strategic Petroleum Reserve to refineries. The Department of Energy lent refineries 9.1 million barrels of oil from the Strategic Petroleum Reserve. The U.S. participated in a coordinated 30 million barrel stock release with the International Energy Agency. The regulators issued emergency waivers to allow the use of winter blend gasoline and higher sulfur diesel fuel. They also temporarily waived the Jones Act, allowing foreign vessels to transport oil between U.S. port to alleviate supply bottlenecks. 2022 RUSSIAN INVASION?OF UKRAINE Russia’s full-scale attack on Ukraine in 2022 triggered a?energy crises as European countries scrambled?to reduce their dependency on Russian oil and _gas. The search for alternatives to oil led to a spike in prices of over 50% in just a few short weeks. Crude reached some of its highest levels since 2008. Joe Biden, the then-president of the United States, ordered 180 million barrels to be released over a six-month period in March 2022 to combat the surge. The U.S., along with other Western nations, also placed price caps on Russian crude oil exports in an effort to reduce Russian funding of the war without taking the oil off the market. (Reporting from Anushree mukherjee in Bengaluru and Anmol choubey; Editing by Sharon Singleton).
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US consumer spending and core PCE inflation are firmer than before the Iran war
U.S. Consumer spending increased solidly in January, and the rate of inflation remained high. This, along with the long-running war in the Middle East, strengthened the view among economists that the Federal Reserve will not cut interest rates again before September. Other data released by the Commerce Department Friday, despite the slightly higher-than-expected rise in spending, were not encouraging. The non-defense capital goods orders, which are closely watched as a proxy for business expenditure, were unchanged in January. Economic growth also slowed more than originally thought during the fourth quarter. The reports, which came in the wake unexpected job losses that occurred in February, put stagflation in the spotlight, complicating the job of the U.S. Central Bank. "We see a sharp rise in inflation, and a weaker economy in the second quarter, due to the spikes in gas and energy prices. We also see weaker exports in the wake of disruptions in other parts of the world, as well as a decline in business confidence," explained?Kathy Bostjancic. The Bureau of Economic Analysis of the Commerce Department reported that consumer spending, which makes up more than two thirds of the economy, increased by 0.4% in January, after rising by the same margin in the previous month. Consumer spending was expected to rise by 0.3%, according to economists polled. BEA has yet to release data due to delays caused by the government shutdown last year. The government shutdown was the longest ever, and it weighed heavily on spending. This, along with consumer spending slowing down late last year, and business investment slowing down, all contributed to a 0.7% annualized rate of growth in the fourth quarter. The GDP was previously estimated to have grown at a pace of 1.4%. The third quarter saw an economy that grew by 4.4%. The U.S. and Israeli war on Iran could have a negative impact on consumption, as it has increased oil prices. AAA data shows that retail gasoline prices have increased by more than 20 percent to $3.60 a gallon since the war began. The war also causes volatility on the stock exchange, and economists warn of a reduction in wealth among households with higher incomes that could force them to reduce their spending. The main drivers of the economy and consumer spending are high-income households. As tariffs on imported goods increased prices, lower-income households already reduced their spending. U.S. shares opened mixed. The dollar gained against a basket currency. Treasury yields in the United States fell. A SLOWER GROWTH IN THE ECONOMIC INDUSTRY IS EXPECTED The second quarter was expected to be the most difficult for the economy. Before the war, inflation was high. BEA reported that the Personal Consumption Expenditures Price Index increased by 0.3% in January, after increasing 0.4% in December. PCE inflation increased by 2.8% in the twelve months to January after increasing by 2.9% in December. PCE prices rose 0.4% excluding volatile components such as food and energy, which was in line with expectations. Core?PCE inflation rose 3.1% on an annual basis, the biggest increase since March 2024. It had risen 3.0% in December. The Fed uses PCE inflation to track its 2% target. Next Wednesday, the central bank will likely keep its overnight benchmark interest rate between 3.50% and 3.75%. Economists believe that the window for rate reductions is closing. Financial markets expect a single cut this year, in September. Census Bureau, a separate report of the Department of Commerce, showed that core capital goods orders remained unchanged in January after increasing by 0.8% in December. Economists predicted that orders for these goods would rise 0.5%. Shipments of capital goods declined by 0.1% in January after rising 1.0% in December. The business spending on equipment may increase due to increased spending on artificial intelligence and data centers. On Thursday, the government announced that capital goods imports had reached a new record. This was largely due to computers and telecommunications gear. The government reported on Thursday that imports of capital goods rose to a record high, driven by computers and telecommunications equipment. The orders for durable goods (items such as toasters and aircraft that are meant to last at least three years) were unchanged in January, after dropping by 0.9% in December.
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Greenland's Siumut Party withdraws from the ruling coalition
Greenland's Siumut Party has withdrawn from a 'coalition' government, said the Prime Minister 'on Friday. This weakens efforts to present an united front against U.S. president 'Donald Trumps' 'campaign' to 'take control of the Arctic Island. The party's departure comes after Siumut chair Aleqa Hammond warned that it would leave if two Greenlandic Ministers declared candidacies in the March 24 Danish parliamentary elections without a prior "leave". Greenland's Premier Jens-Frederik Nie expressed disappointment, but stated that his "government" would continue. He stressed the importance of good governance in a time of increased global scrutiny. He told reporters: "It's terrible timing, and I'm frustrated and disappointed because it's happening at a time we should be standing together." He said that foreigners would be attracted by anything that looked like a division in the country. We should avoid this at all costs. The broad coalition was a cornerstone in?Nielsen?s strategy for responding to Greenland?s worst time since recent history, as he called it. According to KNR, Siumut’s departure means that Greenlandic Minister of Foreign Affairs Vivian Motzfeldt is leaving the post. She has reportedly played a 'key role' in diplomatic discussions with the United States. The government's majority is not threatened by the loss of support from 'Siumut,' which has four seats in Greenland’s Inatsisartut Assembly, with its remaining 19 seats. Greenland is set to elect two new members of the Danish parliament in the coming weeks. (Reporting and editing by Terje Solsvik, Louise Rasmussen and Stine Jacobsen)
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Russia could sell electricity to Kyiv via the Zaporizhzhia Nuclear Plant
The 'head' of Russia's state nuclear corporation stated on Friday that Russia will control the relaunch and operation the Zaporizhzhia Nuclear Power Plant when it is safe. However, it would also be willing to talk about selling electricity to Ukraine. The comments of Rosatom chief Alexei Likhachev revealed the gap between Moscow and Kyiv regarding the status of this plant, which Russian troops captured in the early weeks of the 2022 war. Peace talks are centered around the fate of the southern Ukraine plant. Donald Trump, the U.S. president, has proposed that American nuclear plants in Ukraine, including Zaporizhzhia be owned or managed by America. Volodymyr Zelenskiy, the Ukrainian president, said in December the U.S. proposed a joint trilateral operation with an American as the chief manager. He said Kyiv proposed a joint Ukrainian-U.S. operation of the plant with an American chief manager. PREPARE TO RESTART OPERATIONS Likhachev, the Russian minister of energy and industry, said that six reactors at the plant are currently being kept cool in order to ensure safety. However, he added that preparations were underway to restart them as soon as security permitted. He said that 'Russia has issued operating licenses for two of the units. A third is coming soon and licences are also being prepared for the other units. Likhachev, after meeting Rafael Grossi, director of the International Atomic Energy Agency, told reporters: "We are prepared to restart the work. The necessary equipment is available." He said: "As soon we have the chance, we'll start up and operate the station under IAEA oversight." Likhachev described an example in which Rosatom would operate the plant, but that "commercial aspects could be viewed on a multilateral basis". He added that "under certain conditions, it could be discussed whether electricity is supplied to Ukraine". Likhachev stated that the 6 gigawatts could be used to power data centers. "We may have new partners here...we're talking about the United States among others." GROSSI: PEACE AND CALM ARE NEEDED Grossi said to reporters: "We are in need of peace and calm. A nuclear power plant cannot operate if it is threatened by a violent or kinetic act. You cannot, of course start a nuclear plant "overnight." Russia and Ukraine were at war over this plant in southern Ukraine. They have often accused each other that they had shelled it. Likhachev stated that the number of artillery attacks, drone strikes and mortar fire has increased in recent months. Grossi was praised for his role in organizing the latest ceasefire - the 5th so far – around the plant to allow repairs to the external power lines which help keep the nuclear materials from overheating.
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Weekly gain is driven by the Mideast war, not aluminium.
Aluminum fell on Friday as the dollar gained strength, but shipping disruptions due to the ongoing Middle East conflict kept it on track for a weekly rise. Open outcry official activity showed that benchmark three-month aluminum?on London Metal Exchange was?down by 0.9% to $3,485.50 a metric ton. The metal was set to finish the week with a 1.3% gain after reaching a near four-year high Thursday. Last week, the metal jumped 10%. Tom Price, Panmure Liberum's analyst, said that the dollar was "the biggest mover." The dollar rose to its highest level in more than three months on Friday, as turmoil in the markets left it as a safe haven. Dollar-denominated metals are more expensive to holders of other currencies. Price said that the fundamental drivers of aluminium production in the Gulf were soaring energy costs, and they had difficulty obtaining raw materials. "Even if?didn't, they couldn't ship out. It's a nightmare. This means that about 2 to 3 millions tons of capacity are at risk. Price stated that there is no quick-fix solution. Last year, the world produced 73.8 millions tons of primary aluminum. LME aluminium stocks The?lowest level since July was 445,300 tonnes. Spread between cash LME Aluminium contract and three-month forward Last year, the price of metal was $29 per ton lower than it is today. This indicates a demand for metal in the near future. In China, however, Shanghai exchange aluminium ?stocks The number of tons sold increased by?5.6% compared to last week, reaching 416,425 for the first time since April 2020. Copper also fell?1.2%, to $12,874 per ton, due to macroeconomic concerns. This is the third consecutive daily loss. Nickel dropped 1.3% to $17.520, while tin fell 3.1%?to $48,875 and the price of lead was down by 0.9%?at $1.929.50 after reaching its lowest level since May. Zinc, the only metal to gain, rose 0.2%, or $3,308. (Reporting and editing by Sonia Cheema; Additional reporting by Dylan Duan and Amy Lv in Shanghai; Lewis Jackson and Diti Pjara in Beijing)
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Dollar on course for second consecutive weekly increase; Euro, yen are at multi-month-lows
The U.S. Dollar was set to?gain a second weekly gain as investors moved?towards safer assets on Friday, as the Middle East war pushed investors towards safe-haven currencies. Energy-sensitive currencies like the euro and the yen fell to multi-month-lows. The economies of Japan and the euro zone, which heavily depend on crude imports would be severely affected by a sharp rise in oil prices. The economists are still wary about monetary tightening, as the dependence of these economies on fuel imports will likely lead to a rise in energy prices that could weigh on economic growth. The euro dropped to its lowest level since August and Japan warned it would take action to prevent a decline in the yen which had reached its lowest point in 20 months. Volkmar Baur is a Commerzbank forex strategist. He said that recent statements from the U.S. government about the potential for a quick end to the conflict made the market less responsive. U.S. president?Trump said in a virtual G7 meeting on Wednesday that Iran was "about to surrender", Axios on Friday reported, citing three G7 officials briefed about the contents of the conversation. The rising oil prices fuelled fears of a weaker economy and increased inflation. Brent futures dipped on Friday after an Indian tanker left the Strait of Hormuz. They had jumped in previous sessions. The U.S. issued a 30-day permit for countries to purchase Russian oil and petroleum products that were stranded on the sea. This was done to ease supply concerns. The International Energy Agency released a record 400,000,000 barrels of crude oil from strategic stockpiles on Wednesday. Mark Dowding said that there is only so much the IEA could do in the long term. Analysts have argued that the emergency measures taken to ease oil supply disruptions could be sending a negative message to markets, that there is little room for a quick de-escalation. Dollar index, which measures greenbacks against a basket currencies, has reached its highest level since November 28. This is partly due to the safe-haven appeal of the dollar, but it's also because the U.S. exports energy. The index rose by 0.40%, to 100.10, and was poised for a gain of 1.25% this week. EURO LOWEST IN 7 1/2 MONTHS The euro has fallen to its lowest level in August, $1.1438. It was last down by 0.40% on $1.1464. Investors are awaiting the European Central Bank's policy meeting on Thursday. Traders bet that the surging oil price could force the central bank to raise rates this year. Economists say that a prolonged closing of the Strait of Hormuz is needed to justify ECB monetary 'tightening' to combat inflation. Citi however argued that a few "insurance" increases could not be excluded, and the central bank may open the door for this next week. Citi's main argument is that the ECB should not act because of uncertainty. The greenback reached its highest level since January against the Swiss Franc, at 0.7894. It was last up by 0.18%, at 0.7875. YEN IN INTERVENTION Territory The yen fell to 159.69/$, its lowest level since July 2024. It was last unchanged at 159.37. Satsuki Katayama, Japan's Finance Minister, said that Japan was ready to take action against yen movements that affect people's daily lives. She also stated on Friday that she is in constant contact with U.S. authorities regarding?foreign currency issues. Analysts said that the recent hesitation by officials to promote the currency could push the yen down to 165 yen to the dollar. Chris Turner, head forex strategy at ING said that Japan's authorities were firmly in the intervention zone. The Australian dollar fell 0.40% against the greenback, to $0.7046. (Reporting and editing by Lincoln Feast; Pooja Dasai, Louise Heavens and Lincoln Feast)
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US consumer spending and core PCE inflation firmed up in January
U.S. Consumer Spending increased slightly more than anticipated in January. This, along with the continued strength of underlying inflation as well as the ongoing war in the Middle East, bolstered the views of economists that the Federal Reserve will not be cutting interest rates for some time. The Bureau of Economic Analysis of the Commerce Department reported that consumer spending, which is responsible for'more than two thirds of the economic activity', rose by a margin of 0.4% after rising by the same margin last December. Consumer spending was expected to increase by 0.3%, according to economists polled. This follows a 0.4% rise in December. BEA has yet to catch up with data releases due to delays caused by the government shutdown last year. The U.S. and Israeli war on Iran could have a negative impact on consumption, as it has increased oil prices. AAA data shows that retail gasoline prices have increased by more than 20% to $3.60 a gallon since the war began. The war also causes volatility on the stock market. Economists warn of wealth loss among households with higher incomes, which could force them to reduce their spending. The main drivers of the economy and consumer spending are high-income households. As tariffs on imported goods increased prices, lower-income households already cut back. Economists predicted that the economic drag would be felt during the second quarter. Kathy Bostjancic is the chief economist for Nationwide. She said that gasoline prices are expected to increase to $3.75 per gallons in the U.S. in the next few weeks. It could take the rest of the year before prices return to the pre-conflict levels near $3 per gallons. The spike in diesel fuel prices could lead to higher transportation costs, which will increase price pressures throughout the supply chain. The disruption in agricultural fertilizer shipments is likely to increase?food prices. Before the war, inflation was high. BEA reported that the Personal Consumption Expenditures Price Index increased?0.3% after?rising by 0.4% in December. PCE inflation increased by 2.8% in the twelve months to January after increasing by 2.9% in December. PCE prices rose 0.4% excluding volatile food and energy after a similar gain in December. The so-called core PCE price index was expected to rise 0.4% in January. Core PCE inflation increased 3.1% on an annual basis after increasing?3.0% in the previous month. The U.S. Central bank tracks the PCE inflation measure for its 2% target. Next Wednesday, the Fed is expected keep its overnight benchmark interest rate between 3.50% and 3.75%. The window of opportunity for interest rate reductions is closing. Financial markets expect a single cut this year, in September. (Reporting and editing by Chizu Nomiyama; Lucia Mutikani)
What are the echoes of 2022? The markets look back at Russia's playbook for the Middle East conflict
The world markets are 'rocked' by a Middle East conflict that could cause another inflationary shock. They're looking to the past for clues as to what will happen next. The global economy was recovering from the COVID-19 epidemic when the surge in?energy prices exacerbated inflation. Equities were down and investors sought safety with the dollar. George Lagarias is the chief economist of wealth manager Forvis-Mazars. He said that there are parallels in the sense that the global economy has been weakening due to the trade war.
The trade war is a major inflationary factor that could be amplified by an increase in oil prices.
The markets' reaction to the Middle East conflict is similar to that of the Russia/Ukraine conflict at the beginning of February 2022.
The energy market has seen volatility that rivals the chaos after Russia invaded Ukraine. Brent crude oil is up around 40% since U.S.-Israel strikes a couple of weeks ago, and it was nearing $120 by Monday. Brent crude oil is expected to settle around 15% higher in 2022 at the 2-week mark after reaching its highest level since 2008. Richard de Chazal, William Blair's macro-analyst, said that the oil market "has moved from a world where supply was essentially frictionless for ten or twenty years before the pandemic to a world which is consistently being hit by supply shocks after supply shocks". Since the Middle East conflict began, the dollar has risen by 2.6%. This is the same as its gains in 2022?over the exact same number of days. SAFE HAVEN SHARP-UP Other assets have acted entirely differently. This time, European wholesale gas prices rose by a little over 58%, which is a much more muted response than the nearly four-fold increase in 2022, which reflects Russia's major role as a gas supplier. Germany's 10-year Bund has increased by 30 basis points, while it fell more than 10 basis points four years ago. The markets have been more willing to accept the expectation of higher inflation this time. In 2022, after a sharp fall in yields as pricing pressures became apparent, yields spiked. These fears are less pronounced this time, and the eurozone's five-year inflation swap, which spiked in 2022, is still well-anchored around 2.18%. This is near the ECB target of 2%. The underlying inflationary impulses, however, are the same as four years ago when price pressures following the pandemic forced global rates to rise aggressively. Lagarias, Forvis Mazars’s Lagarias, downplayed any likelihood of similar actions in the near future. He said that central banks would need to see inflationary pressures in core numbers for at least two to three months.
"That's unlikely, and if that does happen, it is probably not due to Iran." Gold, which soared by almost 8% after?Russia invaded Ukraine has dropped about 3% in the aftermath of the Iran War.
RBC strategist Christopher Louney stated that the clear link between the crisis and energy markets meant "there was less immediate need for a general purpose hedge", which contributed to gold's weakening along with higher bond yields, and the dollar.
EUROPEAN Shares Play Copy Cat Four years ago, European shares faced a steep selloff. They dropped about 10% in the first two weeks after war. They are now down 5%.
Europe was in the midst of a storm by 2022 due to its geographical location and energy dependence on Russia. Although the Middle East may be further away, Europe is still vulnerable due to its dependence on energy imports. Barclays equity analysts said Europe's STOXX 600 could reach 550 points, or a 13% drop from the closing level of February 27.
The market conditions in Europe prior to the conflict is one difference.
Stocks were already at record highs in 2022, in anticipation of Russian invasion.
BAD ENERGY
The CBOE Oil Volatility Index has reached its highest level in five years, 120%. This is higher than the peak of 102 % that was hit after Russia invaded Ukraine 2022. Beyond energy, volatility is nowhere near the level that's generally considered to be crisis territory. The?VIX equity volatility index is at a warm 25. This is below the highs in April 2025 of 60, and the COVID's 80.
In February 2022 it reached a peak of 38 before reversing.
The ICE BofA MOVE bond volatility index has risen to 95. This is its highest level since June 2025. It remains below a peak of 140 at the beginning of March 2022. The FX volatility is barely moving.
(source: Reuters)