Institution issues sudden warning
This weekend may be the most anxious one for global financial markets in nearly five years.
Yesterday, two more Middle Eastern countries were forced to join the production cut行列.
Kuwait National Petroleum Company announced that due to threats from the U.S.-Israel-Iran conflict on the safety of shipping through the Strait of Hormuz and other factors, it has declared 'force majeure' and has begun reducing crude oil production and refining throughput.
Abu Dhabi National Oil Company of the UAE also stated in a declaration that it is 'managing offshore production levels to meet storage demands.'
A few days ago, Iraq had already started limiting production due to its storage tanks nearing saturation, Saudi Arabia's largest refinery was forced to shut down after being attacked by drones, and Qatar’s largest global liquefied natural gas export facility has also ceased operations.
Middle Eastern crude oil exports account for approximately 45% of the global total and are at the absolute core of global energy supply. Now, as major oil-producing countries reduce output one after another, compounded by the closure of the Strait of Hormuz, the risk of short-term loss of control over global energy prices is increasing significantly.
Macquarie's global energy strategist issued a stern warning: 'The closure of the Strait of Hormuz for a few weeks will trigger a series of chain reactions, potentially pushing crude oil prices up to $150 per barrel or even higher.'
Last week, international oil prices recorded the largest weekly gain in history – New York crude prices surged 35.63% in a single week, marking the largest weekly increase since records began in 1983.
And all this may just be the prelude to an even bigger storm.
01
The Iran-Israel conflict poses the most direct and fatal impact on the global economy by severing the lifeline of global energy transportation.
How important is the Strait of Hormuz?
Approximately 20 million barrels of crude oil are transported from here to the world every day, accounting for one-fifth of the total global seaborne crude oil trade.
According to recent monitoring data from Goldman Sachs, the flow of oil through the strait has plummeted by about 90%, indicating a daily loss of 18 million barrels of supply.
In their latest report on March 7, JPMorgan's commodity analysts estimated that the scale of supply disruptions in the Gulf region could rise from the current level of approximately 1.5 million barrels per day to 3 million barrels per day by this weekend, and exceed 4 million barrels per day by next weekend; if refined product storage tanks are depleted, production shutdowns could even approach 6 million barrels per day.
This figure is 17 times the peak production decline Russia experienced in April 2022!
Currently, the blockade of the strait has directly triggered a chain reaction of production cuts among Middle Eastern oil-producing countries, with the crisis escalating at a pace far exceeding market expectations.
The 25-day supply buffer period previously predicted by JPMorgan has now completely failed.
Just six days after the conflict erupted, Iraq had already cut its crude oil supply by approximately 1.5 million barrels per day.
Kuwait, a country whose export routes fully depend on the Strait of Hormuz, has declared force majeure on oil and refined product sales, initiating production cuts of 100,000 barrels per day, which are expected to triple in the short term. Three of its refineries, with a combined daily processing capacity of 1.4 million barrels, have been forced to reduce operations, and storage capacity may be exhausted within days.
Although the UAE possesses alternative pipelines that bypass the strait, their limited capacity and partial damage from attacks have left them unable to compensate for the export shortfall, forcing adjustments to offshore production levels to manage storage pressures.
The largest refinery in Saudi Arabia was shut down after being attacked by drones, and Qatar's world-largest liquefied natural gas export facility has been completely suspended.
Qatar explicitly stated that even if the conflict ceases, it would still take weeks to months to restore normal supply; all energy-exporting countries in the Gulf region may fully halt oil and gas production within weeks.
More concerning is that the 'pipeline backup' once hoped for by the market has also failed.
In theory, the East-West pipeline in Saudi Arabia and the Habshan-Fujairah pipeline in the UAE collectively possess a spare capacity of approximately 4 million barrels per day.
However, tracking data from Goldman Sachs shows that over the past four days, the net rerouted flow only increased by about 900,000 barrels per day, far below the theoretical maximum.
This is because the attack on the Port of Fujairah directly hit alternative export capacity, while local shortages of marine fuel made it impossible for tankers to operate normally. Additionally, some pipelines were attacked, significantly reducing rerouting potential.
Currently, onshore storage capacity in the Gulf region can only support 22 days of stranded crude oil, and offshore idle tanker storage capacity is sufficient for only 3-4 days of output. The exhaustion of storage capacity will further exacerbate production disruptions.
As a result, the sharp contraction in energy supply directly triggered an epic surge in international oil prices.
Last Friday, Brent crude oil prices rose to $94.35 per barrel, nearing previous highs. Over the past week, WTI crude oil surged over 36% in a single week, while Brent crude oil rose more than 28%, setting the largest weekly gains on record since 1983 and 1991 respectively.
Goldman Sachs believes that if the situation does not ease, the probability of oil prices exceeding $100 per barrel next week will significantly increase. If the strait remains obstructed throughout March, prices could potentially challenge the historical highs of 2008 and 2022.
Qatar's Energy Minister, as well as the investment bank Macquarie, have issued warnings that if the conflict cannot be quickly resolved, the crude oil market may collapse within days, potentially driving oil prices above $150 per barrel or even higher.
02
Last week, the Dow Jones Industrial Average fell by 3.01% over the week, marking its worst performance in nearly a year.
More reflective of market panic is the 'Fear Index' VIX — which surged 24% on March 6, reaching its highest level since April of last year, while for most of this year, it remained below the 20-point safety threshold.
At the same time, capital was fleeing at a remarkably rapid pace — during the week, investors net sold $21.92 billion worth of U.S. equity funds, representing the largest weekly net sell-off since January 7.
Triggering this round of sell-offs were not only surging oil prices but also the U.S. Department of Labor’s nonfarm payroll report released on March 6:
Nonfarm payrolls in February declined by 92,000, far below market expectations of an increase of 59,000. The unemployment rate rose from 4.3% to 4.4%, and the labor force participation rate dropped from 62.5% to 62.0%.
This set of data significantly heightened market concerns about the risk of 'stagflation' in the U.S. economy.
Sluggish employment growth should have pressured the Federal Reserve to cut interest rates, but the reflationary expectations driven by soaring oil prices could instead force the Fed to tighten policy.
The combination of skyrocketing oil prices and weak employment has created a 'thorny risk of stagflation,' placing the Federal Reserve in a dilemma regarding policy decisions —
Cutting interest rates might fuel inflation, while refraining from doing so could allow employment conditions to deteriorate further.
Another significant development that warrants attention is the major adverse impact facing the AI industry chain, which serves as the world's largest growth driver and the key sector influencing fluctuations in the U.S. stock market.
1. The U.S. plans to expand AI chip export controls from approximately 40 countries to a global scale, triggering sharp declines in NVIDIA and AMD's stock prices.
2. Facilities operated by Amazon in the UAE and Bahrain were affected by Iranian drone attacks, causing temporary disruptions to its cloud computing services; NVIDIA also temporarily closed its Dubai office. This has raised concerns in the market about the risks associated with tech giants' data center projects in the Middle East.
3. Reports indicate that sovereign wealth funds from Saudi Arabia, the UAE, and Qatar are reassessing and delaying large-scale investments in U.S.-based AI/data centers to mitigate risks.
4. Recently, Oracle announced plans to cut thousands of jobs to address funding pressures stemming from the large-scale expansion of AI data centers and has suspended the expansion of its flagship data center in collaboration with OpenAI.
5. NVIDIA recently confirmed it will reduce or even halt substantial new investments in OpenAI and Anthropic, marking the termination of a previously agreed-upon $100 billion infrastructure partnership plan with OpenAI.
The accumulation of these highly significant adverse developments has led to an unprecedented short-term crisis of confidence in the 'AI narrative,' which has driven the U.S. stock market bull run over the past two years.
It is important to note that the market capitalization of several major U.S. technology giants surged to historic highs over the past two years, fueled by the AI narrative. With existing concerns about 'overvaluation,' the current wave of negative news is likely to provoke significant market unease, at least in the short term.
Just last week, signs emerged that some investors were rushing to exit early.
Last week, Blackrock, the world’s largest asset management company, announced restrictions on redemptions for investors in its $26 billion HPS corporate loan fund, sending the most impactful signal to date.
Previously, Blackstone's private credit fund experienced record withdrawals, and BlueOwl's stock price fell below the SPAC listing issue price.
The consecutive distress signals from three major private credit giants may be a signal worth paying attention to.
Over the past three years, private credit has become Wall Street’s biggest 'innovation.' From 2024 to 2026, global data center capital expenditures will surge from $180 billion to $350 billion.
As banks have become hesitant, private credit funds have aggressively injected liquidity at high interest rates of 10%-14%, bundling numerous computing power projects into debt. Consequently, the global private credit market has skyrocketed from $1.2 trillion in 2020 to an estimated $2.8 trillion by 2025, surpassing the U.S. bank loan market.
These private credit funds share a distinct characteristic: investors entrust their capital to asset management giants, who then lend it to enterprises or data center projects. Loan terms extend for 5-10 years, yet investors are allowed quarterly or even monthly redemptions.
Blackrock's restricted HLEND fund is a quintessential example of such high-risk 'semi-liquid products.'
However, this practice of 'short-term funding for long-term investment' creates significant maturity mismatches and substantial latent risks:
If the AI narrative significantly cools down and valuations drop sharply, triggering a redemption wave, institutions will only have two options: freeze redemptions or sell assets.
Redemptions, in turn, will force asset sales, leading to further price declines, which could trigger more redemptions—a situation often referred to as a 'death spiral.'
Such a scenario is not fictional; it occurred just before the 2008 U.S. subprime mortgage crisis—structured credit funds collapsed ahead of the stock market.
Currently, the risk exposure in private credit is intersecting with a pullback in the AI narrative, creating a potentially lethal combination.
Of course, this crisis may not necessarily erupt, but it is significant enough to warrant attention and vigilance.
03
From a historical perspective, volatility triggered by energy crises or geopolitical conflicts ultimately forms part of cyclical patterns, without altering the long-term logic of financial markets: 'crisis—recovery—new highs.'
Energy crises are inherently short-term supply shocks. The oil crisis of the 1970s, the Russia-Ukraine conflict in 2022, and the brief Israel-Iran standoff in 2025 all caused surges in oil prices and stock market corrections. However, after each crisis, markets eventually emerged from the downturn to reach new peaks.
Although this storm appears fierce, it has not deviated from the nature of cyclical fluctuations. The spike in oil prices, setbacks in the AI narrative, and exposure to credit risks are all short-term phenomena. The long-term technological trend of AI remains intact, and credit risks can be mitigated through central bank liquidity adjustments.
Crises have always been part of the cycle, and behind every bout of extreme volatility lies significant opportunity for entry. The key question is whether you will still be on board when calm returns. (End of article)
