Insight Investment

“Although the world won’t run out of oil, bottlenecks are already emerging and likely to intensify.”

In this latest Global Macro Research paper, we examine how disruption in the Middle East has exposed fragile supply chains, pushed inventories lower, and increased the risk of shortages across key oil products. While the world is not running out of oil, bottlenecks are emerging and they are becoming increasingly important for investors to understand.

At the centre of the disruption is the Strait of Hormuz, a critical chokepoint that typically carries around one-fifth of global oil and LNG supply. Damage to infrastructure across the region and constraints on shipping have reduced the flow of energy into global markets, forcing inventories to fall as supply struggles to keep pace with demand. At current rates, global oil stocks are being drawn down rapidly and the more they fall the higher the risk of price volatility and more pronounced shortages.

We analyse vulnerability across three dimensions: oil stock levels, refining capacity, and dependence on imported refined products. This provides a clearer picture of where pressures are most likely to emerge, and why shortages will not be evenly distributed across countries or products.

Our analysis suggests that the risks are highly uneven. Import-dependent economies with limited refining capacity are most exposed, particularly in parts of Asia and Latin America. India stands out as the most vulnerable major economy, with evidence of broad-based shortages and demand contraction already emerging. By contrast, the US has acted as an ‘exporter of last resort’, helping to stabilise global markets, while China and Japan appear relatively well positioned due to larger stockpiles and policy support.

In Europe, the picture is more nuanced. The risk is less about a systemic shortage of oil and more about specific products. The UK and EU are particularly exposed to jet fuel constraints, reflecting both demand patterns and reliance on imports. While additional supply from the US and new refining capacity elsewhere has helped to ease immediate pressure, vulnerabilities remain if disruption persists.

Even if flows through the Strait improve, infrastructure damage and geopolitical uncertainty mean supply conditions are likely to remain tight for some time.

For investors, the key takeaway is that the risks are differentiated by region, by product, and by exposure to global trade. Understanding these distinctions is critical to assessing the potential impact on growth, inflation, and asset prices in the months ahead.