Oil pipelines across the globe are running dry, depleting at an unprecedented rate as the ongoing Iran war severely disrupts crude flows from the Persian Gulf, rapidly eroding the buffer that usually protects markets from supply shocks.The sharp fall in inventories has triggered rising concern across governments and energy markets, with the loss of more than a billion barrels of supply over roughly two months of near-closure of the Strait of Hormuz leaving the system increasingly exposed. Analysts cited by Bloomberg have warned that the thinner cushion not only fuels the risk of price spikes and shortages in the near term, but also extends vulnerability well beyond the end of the conflict.Data from Morgan Stanley shows global oil inventories dropped by around 4.8 million barrels per day between March 1 and April 25. This marks a faster decline than any previous quarterly drawdown recorded in International Energy Agency data. Crude oil accounted for nearly 60% of the fall, while refined products made up the rest of the decline.
Inventories draining amid Middle East heat
Experts say oil systems cannot function without maintaining minimum stock levels, meaning what is termed the “operational minimum” is reached long before inventories hit zero.“Inventories are acting as the shock absorber of the global oil system,” said Natasha Kaneva, JPMorgan Chase & Co.’s head of global commodities research. She added, “not every barrel can be drawn.”JPMorgan warns that OECD inventories could reach “operational stress levels” early next month if the Strait of Hormuz remains closed, and fall further to “operational minimum” levels by September.Goldman Sachs Group Inc. has noted some easing in the pace of drawdowns in recent days, citing weaker demand from China, which has left more supply available globally.However, visible global oil stocks are already close to their lowest levels since 2018, according to the bank.Asia faces mounting pressureThe most immediate stress is emerging in fuel-import-dependent Asian countries. Traders identify Indonesia, Vietnam, Pakistan and the Philippines as the most at risk, with potential shortages possible within a month.Larger economies such as China currently remain better supplied, Bloomberg reported.In contrast, Asia-Pacific inventories outside China have fallen sharply, by around 70 million barrels since the conflict began, according to Kayrros co-founder Antoine Halff.Japan and India are now at at least 10-year seasonal lows, with stocks down 50% and 10% respectively. Supplies of naphtha and liquefied petroleum gas, key inputs for petrochemicals, have also tightened significantly.Some governments maintain that reserves remain sufficient. Pakistan’s petroleum minister said in late April that the country has around 20 days of commercial reserves of refined products, while India’s oil ministry said on May 3 that refinery crude inventories are adequate, though refiners privately acknowledge heavy drawdowns.Frederic Lasserre, head of research at energy trader Gunvor Group, told Bloomberg that gasoline shortages in Asia are likely to emerge first, with Pakistan, Indonesia and the Philippines among the most vulnerable.He added that if the Strait of Hormuz remains closed into early June, parts of Asia could face a macroeconomic shock due to gasoil shortages, while Europe may have a slightly longer window before severe disruption.US inventories fall below historical normsThe United States, increasingly acting as a supplier of last resort, has also seen stockpiles decline below historical averages due to strong exports.US crude inventories, including the Strategic Petroleum Reserve, have fallen for four consecutive weeks. Distillate stocks are at their lowest since 2005, while gasoline inventories are near seasonal lows last seen in 2014.Although US producers are increasing output, executives indicate inventories are still likely to fall in the near term.Europe’s jet fuel runs outIn Europe, jet fuel has emerged as the most constrained product.Stocks at the Amsterdam-Rotterdam-Antwerp hub have dropped by a third since the war began, reaching a six-year low, according to Insights Global.“Since February, we have seen a steady drop in jet fuel stocks,” said Lars van Wageningen, research and consultancy manager at Insights Global. He added that competing demand from Asia and Australia is tightening availability further.While short-term supply remains adequate, he warned stocks could reach critical levels within five months as summer demand rises. The UK, Germany and France are seen as most exposed due to high consumption and limited production.Price hikes and economic riskThe conflict has already pushed up crude and fuel prices, increasing inflationary pressure and raising the risk of a global economic slowdown.Global oil demand has fallen due to both higher prices and supply disruptions. However, analysts say further demand reduction may be required if inventories continue to tighten.“A lot of the inventory and spare capacity has been depleted already,” said Chevron Corp. Chief Financial Officer Eimear Bonner. “We are going to start to see some import-dependent countries potentially start to face critical shortages as we get into the June-July time-frame.”
Strategic reserves being deployed
Governments have already pledged to release around 400 million barrels from emergency reserves coordinated by the International Energy Agency.The United States has so far used 79.7 million barrels of its pledged 172 million, balancing market stability with preserving strategic reserves. The US Strategic Petroleum Reserve could fall to its lowest level since 1982 if fully deployed.Germany has begun reissuing crude and jet fuel not taken in earlier releases and has indicated further action if shortages worsen.However, policymakers face a dilemma: releasing more stockpiles may ease prices temporarily but further weakens the global safety buffer.Analysts expect continued inventory depletion in the coming months, followed by a restocking phase once conditions stabilise.“We expect this destocking environment to continue over the next number of months and ultimately drive a restocking phenomenon longer-term,” said Plains All American Pipeline LP Chief Executive Officer Willie Chiang.He added 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.