SCN Global Flow Monitor: Simulating the Impact of a Strait of Hormuz Blockade

The SCN Global Flow Monitor is a simulation tool designed to stress-test the global oil supply chain by modeling the impact of a blockade in the Strait of Hormuz. By utilizing fluid-stochastic network clearing and Skorokhod inventory dynamics, the model demonstrates how a significant reduction in oil flow would trigger endogenous pricing spikes and the mechanical depletion of emergency stockpiles for net-importing nations.

Simulation Framework and Methodology

The SCN Global Flow Monitor operates as a stress test rather than a predictive forecast, utilizing a model based on the research paper arXiv:2607.17491. The simulation employs a fluid-stochastic network clearing approach to manage supply chain network dynamics, incorporating the following technical components:

• Data Foundation: The model uses UN Comtrade 2025 reported flows. It explicitly excludes sanctioned or unreported trade.
• Inventory Dynamics: It utilizes Skorokhod inventory dynamics to track how emergency buffers for net-importers are drained during supply shocks.
• Pricing Mechanism: The system uses endogenous pricing with strategic trade rebalancing to determine market price shifts based on supply availability.
• Bypass Infrastructure: The simulation accounts for existing bypass pipelines, such as the East-West pipeline and the Habshan-Fujairah pipeline, which are bundled into the "Capacity Retained" settings.

Disruption Scenario Parameters

The "worst coherent physical scenario" modeled in the tool involves a full shipping blockade where bypass pipelines are operating at maximum capacity. Key parameters for this scenario include:

• Capacity Retained: 30% (representing the flow maintained via bypass infrastructure).
• Demand and Supply Elasticity: Both set to 0.10.
• Horizon: 26 weeks.
• Shock Target: A collapse of greater than 60% in flow.

Critical Insights and Technical Limitations

Community analysis of the simulation highlights several critical real-world variables that may influence the accuracy of the model's outputs:

Strategic Petroleum Reserve (SPR) Nuances

A significant technical limitation in general oil modeling is the distinction between crude types. In the United States, the SPR consists of both sour (high sulfur) and sweet (low sulfur) crude. Because US refineries are primarily configured for sour crude, the majority of the SPR drawdown is sour crude. As sour levels drop, brine must be pumped into storage chambers to maintain pressure, which eventually degrades output quality. This suggests a "functional bottom" to reserves that occurs before the total volume reaches zero, potentially triggering diesel supply shocks during high-demand periods like harvest season.

Geopolitical and Data Gaps

Users have noted that the simulation may not fully capture the complexity of the Chinese market, specifically:

• Hidden Supplies: The existence of land routes for oil from Russia and Iran to China that bypass the Strait of Hormuz.
• Political Leverage: The potential for China to use its technological and intelligence ties with Iran to force a diplomatic resolution to a blockade.
• Consumption Discrepancies: The possibility that actual Chinese oil consumption is lower than reported purchase data suggests.

Model Stability and Validation

Some users reported anomalies where reserves depleted even when "Capacity Retained" was set to 100%, suggesting potential issues with the market elasticity parameters or the baseline state of the simulated countries' inventories.

"What modelling approach are you using, and where can I learn more about it? Really cool, btw."

"I really do appreciate the effort but the data doesn’t reflect current conditions... what are we to do with a model that generically tells us oil barrel prices is at $150 3 weeks in, when we are months in?"

Summary of Impacted Dependencies

Beyond crude oil, the simulation and subsequent discussion highlight overlooked dependencies on the Strait of Hormuz, such as the flow of Liquefied Petroleum Gas (LPG) used for cooking gas in countries like India, which imports over 80% of its crude oil and gas requirements.