Barclays recommends that investors "take advantage of recent weakness to build positions" in anticipation of higher oil prices in the coming months.
Suffocation prevails in the oil market, with Barclays warning of an "underestimated shock" to the markets, urging investors to invest in chaos. The extension of the ceasefire by the US with Iran has done little to restore the flows of oil and natural gas through the Strait of Hormuz, with analysts warning that the extent of the disruption remains significantly underestimated in both oil contracts and energy stocks.
Barclays warning of "underestimated shock"
Analyst Lydia Rainforth stated in a note to clients that the Straits remain closed to oil and gas flows for over 50 days, with more than 600 million barrels blocked and over 10 million barrels per day taken off the market. The ongoing American blockade of Iranian ports has kept physical markets in a state of suffocation, with "limited to zero transit allowed from the Iranian side as well," according to Barclays.
Human and shipping costs
The bank added that it is estimated that approximately 20,000 sailors remain trapped on ships within the Persian Gulf, while vessels continue to face severe security threats. A container ship reported coming under fire from an Iranian Revolutionary Guard Corps vessel on Wednesday, sustaining severe damage to its bridge. The ongoing blockade of Iranian ports by the US exacerbates the situation, with the physical market remaining "tight," meaning limited cargo availability and increased transportation costs. According to Barclays, ship transit from the Iranian side is near zero.
International calls to open the Straits
The UAE Minister of Industry and head of ADNOC, Dr. Sultan Al Jaber, warned of the situation, calling for safe passage and stating that "the Strait of Hormuz belongs to the world. It must be returned to the world," he emphasized. The importance of the region is immense, as not only oil but also liquefied natural gas (LNG) passes through there, particularly from Qatar, one of the largest exporters globally.
Investment strategy ahead of price hikes
For Barclays, the market has not yet fully priced in the disruption. The bank estimates that energy stocks currently price in a long-term oil price of just $60–$65 per barrel and recommends that investors "take advantage of recent weakness to build positions" ahead of higher oil prices in the coming months. Oil prices continued to move upward. West Texas Intermediate contracts gained 1.60% to $92.96 a barrel, while Brent recorded a 1.35% rise to $103.84. At least three container ships were hit by fire in the Strait of Hormuz on Wednesday, according to maritime security sources and United Kingdom Maritime Trade Operations.
Traders bet billions on a market "on fire"
Major commodity traders rely on billion-dollar credit lines to finance the vast quantities of oil, gas, and other commodities they move. In times of crisis, such as the current geopolitical tension in the Middle East, pressure increases dramatically as they may face higher margin calls if positions move against them, according to a Financial Times report. Indicatively, a single supertanker can carry over 2 million barrels of oil, worth over $200 million at current prices, reflecting the scale of financing required for each cargo.
Ceasefire without substantive de-escalation
Trading houses spoke to the FT following Donald Trump’s decision to extend the ceasefire indefinitely to allow time for negotiations. However, tension in the Strait of Hormuz has not subsided. Navigation remains essentially frozen, both due to Iranian threats and the US naval blockade. Oil prices surged again above $100 per barrel following Iran's claims that it seized two container ships in the Gulf. Investors are now preparing for a scenario of prolonged conflict, which may keep energy markets in a state of intense instability.
"Long war" scenarios and survival strategy
Although all companies state they hope for a quick de-escalation, they are simultaneously preparing for the worst. Stephan Jansma, CFO of Trafigura, emphasized that the company seeks to become "anti-fragile," increasing its liquidity compared to the pre-conflict period. "The way we must manage the company is based on this long war scenario," he said. Similarly, Jay Ng from Vitol pointed out a less visible but critical dimension: trader exhaustion. After seven weeks of extreme volatility, mental and physical fatigue increases the risk of errors. "We must be careful with the mental health and physical strength of our colleagues," he stated.
Profits amidst instability
Despite the challenges, executives appear cautiously optimistic about their profitability, as volatility often represents an opportunity for major traders. During the energy crisis of 2022–2023, following Russia's invasion of Ukraine, trading houses recorded historically high profits, taking advantage of sharp price fluctuations. Bill Reed, head of Castleton Commodities International, was clear: "From a profit perspective, these types of events are positive." Richard Holtum stated he was "extremely pleased" with his company's performance this year, while Marco Dunand of Mercuria estimated that return on equity would range between 25% and 50%, translating to profits of $2.3 to $3.2 billion, nearly double from last year. At Gunvor, first-quarter gross profits already exceeded the $1.6 billion recorded in the entire previous year.
The next 60 days will judge much
Several traders believe that the next two months will be decisive, as the true intensity of the energy crisis and its impact on financial markets will become apparent. Oil prices initially touched $120 per barrel before being restrained by White House interventions, such as the release of hundreds of millions of barrels from strategic reserves. However, the market remains fragile. "We will see a sudden repricing at some point," warned a senior trader.
Race for liquidity and speed
Governments and banks are preparing for a prolonged crisis, avoiding mass interventions for now, such as fuel subsidies or new reserve releases. Guillaume Vermersch stated that he "sees no immediate end," while Richard Dolcetti emphasized that traders must plan for scenarios that could last "days, months, or even years." At the same time, banks are pushing for faster payment processes, as in an environment of limited supplies, the speed of transaction execution can determine who will secure oil or gas cargoes. "You have to pay fast. Otherwise, you lose deals," a banking source noted.
JPMorgan "counts" 15 days until the energy bomb explodes – The shut-in threatening to blow the oil market apart
As the war enters its third month, markets have definitively abandoned the discussion of an immediate restart of flows. This scenario is considered essentially dead. Any expectation of a quick return to normalcy has vanished, while across the Gulf region, production is not flowing freely but is being gradually restricted, well by well. Forced production shutdowns are spreading through the system, and even in the best-case scenario, the restoration of capacity is not a matter of an immediate restart but a slow, technically demanding process that could take months, if not longer, to approach pre-war levels.
The new question
This leads the market to a more difficult question: Iran, which for years used flow disruption as a lever of pressure, is now faced with the same reality. With the noose around its exports tightening, the question is how much time remains before Tehran is forced to proceed with its own production shutdowns and what this means for a system not designed to remain inactive. Natasha Kaneva of JPMorgan attempts to map this scenario, approaching it not as a sudden shock, but as a gradual deterioration. The longer the restrictions last, the higher the risk that Iran’s own production system will become the next "victim" of the conflict.
The opening and closing of the Strait of Hormuz
Events in the Strait of Hormuz capture the instability of the situation. Saturday saw the largest movement of ships since the start of the conflict, with more than 20 tankers passing after a temporary easing of restrictions. However, on Sunday, the passage was closed again, with Tehran reinstating restrictions and allegedly opening fire on passing ships, claiming the American naval blockade constitutes an act of war. The result was a nearly total collapse of transits, which fell to about 4% of normal levels. Despite official reports, data from Lloyd’s List Intelligence shows that part of the "shadow fleet" continues to move, with at least 26 ships bypassing restrictions, though US authorities dispute these figures.
Blockade that "suffocates" without zeroing out
The emerging picture is not a complete stoppage, but a gradual strangulation of flows. Exports have not hit zero, but have been drastically reduced, with less than half of March's levels reaching international markets. For the market, the difference is small: supply decreases sharply and pressure mounts. Unlike sanctions, which work through restrictions on access and pricing, a physical blockade works through reality itself: ships do not travel and cargoes do not leave. Traditional methods of bypassing are beginning to fail.
From trade to production
This pressure is not limited to trade but is transferred to the fields themselves. If the blockade is maintained, it does not just limit exports but sets them at a ceiling, leading to forced production cuts. The same tool that Iran used in the past as a lever of pressure is now returning as a threat to its own system.
The "cushion" and its limits
Despite the pressure, Iran possesses a temporary economic "cushion," thanks to cargoes already sold at higher prices and quantities already in transit. However, this breathing room depends on the duration and intensity of the blockade. If the pressure is not maintained, the effect weakens before gaining critical momentum.
Not a total collapse, but suffocation
The blockade does not aim for complete economic isolation. Imports of basic goods, such as food and medicine, continue. However, the trading system becomes slower, more rigid, and less efficient, leading to a gradual erosion of flows. According to JPMorgan, Iran's reserves amount to about 86 million barrels, with about half available. This offers a margin of about three weeks in the event of a complete export stoppage, which can be slightly extended by using floating storage. However, production does not wait for this margin to be exhausted. The first cuts are estimated to begin at approximately 16 days, and by the 30th day, production may have decreased drastically, approaching a total export halt.
The minimum operating threshold
Despite the pressure, there is a floor. Domestic demand, approximately 1.8 million barrels per day, imposes a minimum production level. Historically, Iran's production has rarely fallen below this level, except during periods of major political unrest.
Heavy economic blow
The loss of about 2 million barrels per day entails losses of approximately $150 million per day. Since hydrocarbons account for over 80% of exports, the blow is directly transferred to the economy, affecting public revenue, monetary stability, and liquidity. Iran still has significant quantities of oil in transit, much of which is already outside the immediate blockade zone. However, as it moves away from choke points, surveillance becomes more difficult but not impossible. Tehran is expected to intensify the use of alternative routes and networks, leveraging third countries and "shadow" practices. However, every transaction becomes more complex and costly, reducing the system's efficiency. The reduction in dependence on fuel imports offers a degree of resilience. However, pressure is now shifting to the core of production, where risks are greater. A total shut-in is not just a temporary interruption, but can cause permanent damage to infrastructure and fields, particularly in a system with aging facilities.
Countdown
The market is now watching the "clock" of reserves, exports, and production. Everything converges in a critical time window of approximately 25 days. Beyond this point, the crisis may transform from a flow problem into a crisis of deep and lasting impacts for Iran and the global energy market.
www.bankingnews.gr
Readers’ Comments