Oil Markets Are Even Tighter Than They Appear

Welcome to Thoughts on the Market. I’m Mayank Maheshwari, Morgan Stanley’s  research analyst covering energy markets in India and Southeast Asia .

Today: how disruptions linked to Iran and the Strait of Hormuz are creating energy-related disruptions across Asia.

It’s Monday, March 23rd, at 8am in Singapore.

To understand the scale of the impact, let’s start with a simple fact: about a quarter of Asia’s energy – that is oil, liquefied natural gas, and propane – comes from the Middle East, much of it flowing through a single chokepoint, the Strait of Hormuz. Any disruption here affects more than just oil prices. It also hits power generation, industrial output and even food supply chains across the region.

Asia hasn’t seen a true energy access shock in over 50 years. So that makes this moment very critical. And  with oil around $100 per barrel, stress is building in the system. Diesel margins are double pre-conflict levels. Jet fuel premiums have nearly doubled. And Dubai crude – normally cheaper than Brent historically – is now trading at a premium of more than $20 per barrel. This kind of price move signals tightening supply chains.

Asia’s dependence on [the] Middle East runs deep. Refiners source up to 80 percent of crude from the region, and 30–40 percent of LNG imports originate there. For major economies like India and China, roughly 40–50 percent of oil demand passes through Hormuz. It’s a critical energy highway.  And when flows slow, the entire system backs up.

Inventories may look like a buffer. Asia holds around 65–70 days of crude. But the system reacts sooner than waiting to run out. Governments are already rationing energy, industries are cutting LNG and LPG usage, and export restrictions are limiting downstream production of fuels. The tightening has already begun.

The real pressure point may not be oil, but natural gas – particularly LNG, as Qatar, which is a big supplier of Asia's LNG, has seen infrastructure damage. Asia accounts for about half of global LNG consumption, with up to 40 percent secured from the Middle East. Unlike oil, LNG has very limited buffers; in number of days, and not in months.

This is where the story extends well beyond energy. Around 25 million tons per year of petrochemical capacity has been impacted, along with roughly 10 million tons of fertilizer production. Prices for key materials like polymers have risen 15–25 percent in just a few weeks, and the premiums are still rising. These inputs feed into everyday products—from cars and electronics to packaging and agriculture. Even basic services are affected, with cooking gas shortages hitting restaurants in parts of Asia.

Policymakers are responding, but options are limited. Around 100 million barrels of crude has been released from reserves. Countries are securing higher-cost LNG cargoes. And many are turning back to coal for reliability despite environmental trade-offs.

Ultimately, the longer this disruption persists, the more pressure builds across energy, power, chemicals, and food systems. And in a region as interconnected and import-dependent as Asia, those ripple effects spread quickly – and widely.

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Andrew Sheets: Welcome to Thoughts on the Market. I'm Andrew Sheets, Global Head of Fixed Income Research at Morgan Stanley.

Today on the program, a survey of just how quickly key narratives have changed and how lasting that might be.

It's Friday, March 20th at 2pm in London.

The NCAA basketball tournament, also known as March Madness, is one of my favorite times of the year. The single elimination tournament of 64 teams is wonderfully chaotic with plenty of surprises, especially in the early games. And basketball is one of those sports where momentum often seems real. A team that has somehow forgotten how to shoot in the first half of the game can suddenly look unstoppable in the second.

As I said, March is one of my favorite times to watch sports. It is often not one of my favorite times to forecast markets. In 2005, 2008, 2020, 2022, 2023, and 2025, March saw outsized market volatility. And it’s the case again this year. I am sure, it's just a coincidence.

This time, it's not just about a historic disruption to the energy markets, which my colleague Martijn Rats and I discussed on this program last week. It's also a major reversal of the market storyline. If this were a basketball game, the momentum just flipped.

In January and February of 2026, there were strong overlapping signals that the U.S. and global economy were in a good – even accelerating – place, boosted by cheap energy, stimulative policy, and robust AI investment. Oil prices were down as metals, transports, cyclicals and financial stocks, all rose. Europe, Asia, and emerging market equities – all more sensitive to global growth – were outperforming. Inflation was moderating. Central banks were planning to lower interest rates. The yield curve was steepening and the U.S. dollar was weakening. The January U.S. Jobs report was pretty good.

And then … it all changed. In a moment, the Iran conflict and the subsequent risk of an oil price shock flipped almost every single one of those storylines on its head. Now, oil prices rose and the prices for metals, transports, cyclicals and financial stocks all fell. Equities in Europe and Asia – regions that rely heavily on importing oil – underperformed.

The U.S. dollar rose as investors sought out safe haven. Inflation jumped following oil prices. The yield curve flattened on that higher inflation, as we and many other forecasters adjusted our expectations for what central banks would do. And, as it happens, the last U.S. Jobs report was pretty bad.

If the Iran conflict ends and oil resumes flowing through the Strait of Hormuz, it's very possible that this story could once again swing back. But until it does, the speed of which this momentum has flipped means that almost by definition, many investors have been caught off guard and left poorly positioned.

If you couple that with the challenge of diversifying in this new environment – where the prices for stocks, bonds, and even gold have all been moving in the same direction – the path of least resistance for investors may be to continue to reduce their exposure to ride out the storm, driving further near term weakness.

Unfortunately, that could make for an uncomfortable few weeks. At least, there's some good basketball on.

Thank you as always, for your time. If you find Thoughts on the Market useful, let us know by leaving a review wherever you listen. And also tell a friend or colleague about us today.