The elimination of 32% of global oil production (the Persian Gulf’s approximate pre-crisis share of ~32–33 million barrels per day out of ~100–106 mbpd worldwide) since February 28, 2026, has triggered the largest supply shock in the history of the global oil market, according to the International Energy Agency (IEA), and will be a critical agenda item if Trump travels to Beijing this week. Cumulative losses have exceeded 300–440 million barrels in the first 1–2 months, with ongoing daily shortfalls of 9–13 mbpd. Those shortfalls will increase following Iran’s Thursday attack on the UAE Fujairah terminals, which are now inactive. Macroeconomic and Growth Impacts - Inflation surge : Higher fuel costs have pushed up CPI globally (e.g., U.S. CPI rose notably in March; transport, food, and manufacturing costs elevated). Goldman Sachs and others warn of stagflation risks if prices stay elevated.
- - Growth slowdown : OECD/IMF forecasts show global GDP growth cut by 0.3–0.5% or more in 2026 (potential deeper recession if prolonged). Emerging markets and Asia face the heaviest burden.
- - Demand destruction : Higher prices have already reduced global oil demand by ~1–2 mbpd in Q2, with further cuts possible.
- Regional and Sectoral Effects - Asia (hardest hit) : ~80–85% of its oil imports come from the Gulf; countries like China, India, Japan, South Korea, Indonesia, and Pakistan face shortages, higher import bills, currency pressure, and potential fuel rationing. The region is now battling rising inflation and slowing growth. The Asian Development Bank has revised its 2026 growth forecast for the region down to 4.7%, while inflation is expected to average 5.2% .
- - Europe and US : Indirect effects via global prices; U.S. gasoline up ~$1.50+ cents/gallon; Europe sees higher heating/transport costs.
- - Gulf producers : Paradoxically suffer (shut-ins, stranded exports, food import crises, desalination issues).
- - Broader ripples : Aviation and shipping disruptions, higher fertilizer/chemical costs (tied to LNG/urea), and supply-chain inflation. Biofuel demand has risen as a partial substitute.
- Even if a diplomatic solution is found and the strait reopens, experts warn that the global energy market will not quickly recover. The rushed and chaotic shutdown of thousands of oil wells across the Middle East has caused physical damage to reservoirs. Analysts estimate that it could take up to nine months for a country like Iraq to restore its production to pre-conflict levels . The CEO of the world’s largest independent oil trader, Vitol, has stated that the market has already permanently lost hundreds of millions of barrels of crude.
Here is a synthesis of expert analysis from leading financial institutions, energy consultancies, and academics regarding the global effect of the oil disruption from the Persian Gulf.
- Goldman Sachs : Global oil inventories have dropped to an eight-year low (approx. 101 days of demand), with refined product buffers “approaching very low levels fast.” - - J.P. Morgan : The fertilizer supply shock has increased global nitrogen benchmarks by 25-50%, potentially lifting global food inflation to 4-5% . - - TotalEnergies (CEO Pouyanné) : The world is consuming inventories at a catastrophic rate of 10-13 million barrels per day . - - TD Securities : The disruption has removed 9-10 million bbl/d (approx. 10% of global supply) and warns Brent could surge toward a range above $150/bbl . - - Rapidan Energy Group (Bob McNally) : Warns that a prolonged closure would lead the global economy into a “certainty recession.” - Experts agree that the market has moved beyond immediate price shocks into a structural depletion of reserves. Goldman Sachs reports that the rapid drawdown of global oil inventories has reached an eight-year low, with stocks projected to fall from 101 to just 98 days of demand coverage by the end of May (down from ~128 days in 2020). More critically, “easily accessible” refined product buffers (gasoline/diesel) have dropped from 50 to 45 days of demand since the conflict began, leaving the market vulnerable to even minor additional shocks .
Patrick Pouyanné, CEO of TotalEnergies, described the physical reality of this depletion, stating that the world is consuming 10 to 13 million barrels of inventories per day to balance the market. He estimates that roughly 1 billion barrels of stored oil will be consumed before supply routes normalize .
A key secondary effect identified by J.P. Morgan is the disruption of fertilizer supply chains . The Middle East accounts for 42% of global urea and 27% of ammonia exports. Since late February, nitrogen fertilizer benchmarks have surged 25-50% . J.P. Morgan estimates this will “lift global food inflation temporarily to 4–5%,” with the impact hitting retail prices with a lag through late 2026 and into 2027 .
Dr. Ammar Zafar (Global Policy Journal) and Musa Shahbazi (Economic Analyst) see a diplomatic stalemate. Iran’s establishment of the “Persian Gulf Strait Authority” is viewed as an institutionalization of control, requiring explicit resolution in any ceasefire—making a rapid return to normal unlikely . Simultaneously, the US naval blockade is viewed as an economic weapon not just against Iran, but against China (its primary oil customer), signaling a new phase of great-power economic conflict .
China’s economy has a very high level of dependence on imported oil, with around 70% to 73% of its total oil consumption coming from foreign sources in 2025 . As the world’s largest crude oil importer, this reliance creates a significant vulnerability, yet China has built a multi-layered set of defenses to manage this risk .
Despite this high level of dependence, analysts note that China is better positioned than many of its Asian neighbors to weather a supply crisis . The country has spent years constructing a “double-insurance” security system based on four key pillars . Pillar 1: A Massive Strategic Petroleum Reserve (SPR) :
China has built the world’s largest stockpile of crude oil, including both strategic and commercial reserves. Estimates place this at between 1.2 and 1.5 billion barrels , enough to replace 120 to 140 days of normal imports . This massive buffer is the country’s primary defense against a sudden cutoff, allowing it to continue operating even if no new oil arrives for months . The government has also taken steps to conserve this supply, such as ordering refiners to stop exporting finished fuels like gasoline and diesel . Pillar 2: Diversifying Supply Sources :
China has deliberately avoided becoming over-reliant on any single country or region. It now sources oil from over 40 different countries . Key alternative sources include: Russia: China’s largest single supplier, with pipeline imports supplementing seaborne deliveries . The Americas: Imports from Brazil have surged to record levels, and China is looking to expand ties with Canada . Africa & Central Asia: An array of other suppliers, including Angola and Kazakhstan, further spreads the risk.
Since the Persian Gulf disruption began in late February, China successfully pivoted to these alternative suppliers, with imports from the Gulf falling 25% while total crude imports dropped only 2.8% in March . However, replacing all Gulf oil is difficult, and total imports have still fallen . Pillar 3: A Unique Domestic Energy Mix :
Unlike many economies, China is not overly reliant on imported oil for its electricity generation. Coal, which China produces domestically in vast quantities, and renewables like hydro, solar, and wind, power the vast majority of its grid . Oil and gas account for only about 4% of China’s electricity generation , which is far lower than other Asian countries . This means that a disruption in oil imports affects transportation and industrial feedstocks (like chemicals) more than it does the lights in people’s homes. Pillar 4: Surging Electric Vehicle (EV) Adoption
A structural shift in demand is also reducing China’s vulnerability. The adoption of EVs has vastly exceeded government targets, with new-energy vehicles (NEVs) now accounting for half of all new car sales . This rapid transition is significantly dampening the country’s growth in demand for gasoline and diesel, reducing the impact of a supply shock on its overall economy.
The US blockade of Iran has exacerbated the situation. China’s response to the US blockade has been multidimensional — sharp in rhetoric, strategically cautious in action, but increasingly bold in economic defiance. Here is a full picture: Official Condemnation China’s Foreign Ministry spokesman Guo Jiakun called the US blockade of Iranian ports a “dangerous and irresponsible act” that risks undermining an “already fragile ceasefire situation.” He stated that “only by achieving a comprehensive ceasefire and ending the war can we fundamentally create conditions for easing the situation in the strait,” and urged all parties to restore normal traffic in the strait as soon as possible. The Legal Argument China’s Foreign Ministry stated that the US-Israeli strikes had no UN Security Council authorization and violate international law, and expressed deep concern over regional spillover effects. Beijing has consistently framed the entire conflict — not just the blockade — as illegitimate under international law, a position Wang Yi reiterated explicitly during the Araghchi visit. IntelliNews Defying US Sanctions: The Unprecedented Step In one of the most significant escalations of its resistance to US economic statecraft, China formally ordered its companies to disregard US sanctions on Iranian oil. A blocking statute allows Chinese companies to seek damages in domestic courts from banks, insurers, or shipping companies that cut ties in order to comply with US measures. Analysts described this as “unprecedented” and “a major escalation in terms of China’s response to US economic statecraft.” The Fertilizer Institut Chinese oil tankers have continued to transit through the Strait of Hormuz daily without any US response, and China has officially declared it does not recognize unilateral US sanctions against Iran or Russia, as well as sanctions against its own oil refineries. Goldinvest Many Western analysts are in denial about the new strategic relationship between China and Russia, believing that it is a marriage of convenience rather than a bona fide de facto alliance. According to a Council on Foreign Relations senior fellow, China has sufficient commercial and strategic petroleum reserves to support domestic needs as long as the war doesn’t last longer than a year, and Xi Jinping is primarily concerned about the relationship with the United States. China wants the war to stop so it does not derail the start of China’s strategic dialogue with Washington. His underlying assumption is that China cares more about its relationship with the US than with Russia. I think that is absurd.
A European pundit — Velina Tchakarova — shares a similar view :
Dubbing the Russian-Chinese alliance “Dragonbear, ” geo-strategist Velina Tchakarova cautions that it is “neither an alliance nor a marriage of convenience, but rather a temporary asymmetric relationship, in which China is predominantly the agenda-maker, while Russia is mostly the agenda-taker.
The Russian-Chinese rapprochement operates, in Ms. Tchakarova’s words, according to the maxim “‘Keep your friends close and your enemies closer.’ A status quo relationship would remain acceptable and be further developed so long as China’s rise is not a direct threat to Russia’s strategic interests of self-determination and security along its peripheries,” including the Middle East.
The question is not whether Russia will begin to perceive Chinese interests as a threat to its own interests, but when. One divergence could be energy, given that Russia is one of the world’s major oil suppliers while China is its top importer.
China may not, over the longer term, wish to be dependent on Russia for both its imports and the arrangements that would secure them.
As I noted in my last article, Russia and China are engaged in a multi-pronged diplomatic effort to exploit mounting doubts in the Persian Gulf about the reliability of the US as the region’s sole security guarantor and are proposing a radical overhaul of the security architecture in the area. I do not believe that President Xi is willing to compromise on that issue… China and Russia share the view that the United States is a genuine threat to international order and are committed to mitigating that threat.
I had a conversation earlier this week with Ed DeMarche, editor of the Trends Journal: --- I thank you for your invaluable support by taking time to read or comment. I do not charge a subscription fee nor do I accept advertising. I want the content to be accessible to everyone interested in the issues I am discussing. However, if you wish to make a donation, please see this link .