Analysts See Prolonged War Cutting Up To 70% Of Crude Output

By K Raveendran

#Oil markets have entered a phase of acute uncertainty as military escalation involving strikes on Iran and the resulting closure of the Strait of Hormuz begin to reverberate through global energy supply chains. Within just over a week of the disruption, more than 12 million barrels of oil equivalent per day of Middle Eastern oil and gas production has been taken offline, including about 7 million barrels per day of crude supply. The scale of the disruption represents roughly seven per cent of global liquids demand, a sudden shock to a system already operating under tight spare capacity. Analysts warn that the current level of disruption may only represent the early stage of a broader supply crisis, with projections indicating that regional crude output could plunge much further if the confrontation intensifies.

Energy markets historically react strongly to threats around the Strait of Hormuz because the narrow waterway is one of the most strategically significant oil transit corridors in the world. Under normal circumstances, roughly one-fifth of globally traded petroleum passes through the strait, linking producers in the Gulf with markets across Asia, Europe and North America. The closure following US-Israeli strikes on Iranian targets has effectively severed this route, forcing producers and shipping companies to halt exports or seek limited alternative pathways that cannot absorb the displaced volumes. The immediate effect has been a sharp contraction in available supply from the region.

Among the major producers affected, Iraq has suffered the most severe impact. More than sixty per cent of its pre-conflict production has been curtailed as export terminals face operational disruption and shipping insurers withdraw coverage for vessels entering the conflict zone. Iraq’s heavy reliance on Gulf shipping routes has made it particularly vulnerable to any interruption in Hormuz traffic. Fields across the south, which normally channel crude toward export terminals near Basra, have been forced to reduce output as storage capacity fills and logistical channels collapse. The loss of Iraqi barrels is particularly consequential for Asian buyers that depend heavily on these supplies for refining operations.

Other regional producers are also experiencing mounting constraints. Gulf exporters including Saudi Arabia, the United Arab Emirates and Kuwait possess limited alternative routes that bypass the Strait of Hormuz, yet those pipelines cannot handle the full scale of normal exports. Saudi Arabia can redirect some shipments through its East–West pipeline to the Red Sea, but the capacity remains far below the volumes typically shipped through the Gulf. The United Arab Emirates operates a pipeline connecting Abu Dhabi’s oilfields to the port of Fujairah outside the strait, but even that infrastructure can only absorb part of the country’s production. As a result, producers are increasingly being forced to throttle back output rather than risk accumulating unsold barrels.

Gas markets have also begun to feel the pressure. Qatar, the world’s largest exporter of liquefied natural gas, depends heavily on the Strait of Hormuz for shipments to Europe and Asia. Any sustained closure threatens to disrupt a significant share of global LNG supply, complicating efforts by importing countries to maintain stable energy flows. Even temporary delays can have outsized consequences because LNG trade relies on precise shipping schedules and long-distance contracts.

The scale of production losses already recorded—more than 12 million barrels of oil equivalent per day—illustrates how quickly geopolitical conflict can translate into energy disruption. Roughly seven million barrels per day of crude supply has disappeared from global markets in a matter of days, an amount large enough to influence prices and trigger panic among consuming nations. To place the magnitude in context, the shock is comparable to several historic supply disruptions that have shaped oil market history, including those triggered by wars in the Middle East during earlier decades.

Yet the more unsettling prospect lies in what analysts describe as the worst-case scenario. Should hostilities expand or the strait remain closed for an extended period, regional crude output could fall to around six million barrels per day. Such a level would represent a staggering reduction of roughly seventy per cent from the Middle East’s normal production baseline. The collapse would remove tens of millions of barrels per day from global supply chains when accounting for both crude and associated gas.

Several factors contribute to the fear that the disruption could deepen. Military escalation could damage energy infrastructure directly, including export terminals, pipelines or offshore loading facilities. Insurance restrictions could also widen, deterring tanker operators from approaching the Gulf even if limited navigation becomes possible. Energy companies may choose to shut fields temporarily to protect workers and equipment if security conditions deteriorate further.

Another concern involves the broader regional ripple effects. The Middle East functions as a tightly interconnected production network in which pipelines, ports and storage facilities serve multiple countries simultaneously. Disruption in one location can cascade across neighbouring producers. If attacks or blockades expand beyond the Strait of Hormuz, additional export routes may become compromised, further constraining supply.

Global markets are already attempting to adjust to the shock. Strategic petroleum reserves maintained by several major economies could provide short-term relief, but those inventories are designed primarily for temporary emergencies rather than prolonged disruptions lasting months. Moreover, releasing reserves cannot replace the structural loss of Middle Eastern production if output declines to the levels analysts fear.

Other oil-producing regions might attempt to raise production to offset the shortfall, yet spare capacity outside the Gulf remains limited. Some producers have room to increase output, but logistical and technical constraints prevent rapid expansions large enough to compensate for the loss of millions of barrels per day. The result is a market environment in which supply flexibility is extremely constrained.

Economic implications are already becoming apparent. Higher energy prices typically translate into increased costs for transportation, manufacturing and electricity generation. Import-dependent economies in Asia and Europe are particularly vulnerable because they rely heavily on Middle Eastern crude for refining operations. Refiners designed to process Gulf crude grades may struggle to secure alternative supplies that match the same quality and chemical composition.

At the same time, geopolitical dynamics are shifting rapidly. Energy security considerations often influence diplomatic calculations during conflicts involving major producers. Countries dependent on Gulf supplies may intensify efforts to mediate or de-escalate tensions in order to restore shipping routes. Others may accelerate longer-term strategies aimed at diversifying energy sources, including investments in renewable energy or expanded domestic production.

Even if the Strait of Hormuz eventually reopens, restoring full production could take time. Oilfields that have been shut or throttled back require careful technical procedures to resume normal output levels. Shipping schedules must be rebuilt, insurers reassured and trading flows re-established. Markets that have adjusted to disrupted supply may remain volatile until confidence returns. (IPA Service)

The article Analysts See Prolonged War Cutting Up To 70% Of Crude Output appeared first on Latest India news, analysis and reports on Newspack by India Press Agency).