The ongoing crisis in the Middle East has brought the Strait of Hormuz to the brink of closure, disrupting global oil supplies and forcing Gulf nations like UAE, Iraq and others, to slash production. With storage tanks filling rapidly, analysts warn of the growing risk of a total production shutdown if output is not carefully managed.
The latest addition to this list is Saudi Arabia, the world’s largest oil exporter, which has reduced production by between 2 million and 2.5 million barrels a day. The kingdom is rerouting some supplies through the Red Sea to maintain exports, although the pipeline there cannot fully handle the usual volumes.
“Saudi Arabia, the world’s largest oil exporter, is also rerouting some supplies through the Red Sea to maintain exports,” a source told Bloomberg.
Earlier, the UAE also lowered output by between 500,000 and 800,000 barrels per day, rerouting some exports through Fujairah, which has also been struck by Iran. While this alternative route helps maintain shipments, it covers only a fraction of the Gulf’s usual exports. “The ongoing war in the Middle East has brought maritime traffic through Hormuz nearly to a halt, with mostly only Iranian shipments moving through,” Bloomberg reported.
Kuwait Petroleum Corporation began cutting oil output last week and declared force majeure. The company said the reduction was precautionary and would be reviewed as the situation develops, adding that it remained ready to restore production levels when conditions allow. Back in February, Kuwait produced around 2.6 million barrels per day of crude oil. The production cut comes as the disruption of oil flows through the Strait of Hormuz begins to fill storage tanks, prompting proactive reductions to prevent storage facilities from reaching capacity too quickly.
Iraqi oil production from its main southern fields has fallen by 70%, to just 1.3 million barrels per day, down from 4.3 million barrels per day before the war. Exports dropped sharply to an average of around 800,000 barrels per day, with only two tankers loading because vessels cannot move freely through the Strait of Hormuz.
Iraq’s storage capacity has likely been exhausted, prompting output cuts of around 1.5 million barrels per day last week. Rystad Energy warned that Iraq’s remaining operational oil fields “face an imminent, near-certain shutdown.”
Qatar, India’s largest supplier of imported natural gas, declared force majeure on LNG deliveries following a halt in production after an Iranian drone strike. Sources said the disruption has cut supplies to Indian industry by up to 40%, affecting power generation, fertiliser production, CNG distribution, and piped cooking gas networks.
“Gas importer Petronet LNG Ltd has informed gas marketers of Qatar halting its liquefied natural gas production after Iran continued to strike Gulf countries in retaliation for Israeli and US strikes against it,” sources said.
Impact on global oil prices
The conflict has pushed oil prices to nearly $120 a barrel after Israel struck Iran’s energy infrastructure and Tehran announced Mojtaba Khamenei as Iran’s new Supreme Leader. Earlier on Monday, Brent crude reached $119.50 before easing to around $100 per barrel, still over 20% higher than pre-war levels.
The war has created fresh fears for energy infrastructure across the Middle East, with producers already grappling with damaged sites from Iranian attacks and the closure of the Strait of Hormuz, the world’s most critical oil shipping route.
How much more can their tanks store?
With storage tanks nearing capacity, Gulf oil-producing nations face the risk of a complete production halt. The Strait of Hormuz carries roughly one-fifth of global oil and LNG flows, making its closure a worst-case scenario for energy markets.
“Collectively, Gulf nations can store about 343 million barrels of oil to delay an inevitable production stoppage,” JP Morgan said as cited by Deutsche Welle. However, with around 15 million barrels per day of crude and over 4 million barrels per day of refined products typically flowing through the Strait, storage buffers are extremely limited.
Iraq, which had just six days of storage, has likely already reached its limit, prompting Baghdad to cut output by around 1.5 million barrels per day last week. Rystad Energy, a Norwegian research firm, warned on Monday that Iraq’s remaining operational oil fields “face an imminent, near-certain shutdown.”
Saudi Arabia, by contrast, had 66 days of storage as of 28 February, according to JP Morgan, assuming the kingdom could reroute some exports through alternative routes. Rystad Energy cautioned, however, that the Saudis may have only seven to nine days of “effective runway before forced output cuts,” as cited by Deutsche Welle
Saudi Aramco is redirecting as much oil as possible to the Red Sea port of Yanbu, while the UAE is sending some of its exports through Fujairah, despite the port also being targeted by Iran. These alternative routes currently handle only about a third of the volume that normally passes through the Strait of Hormuz.
Bloomberg News reported that Saudi Arabia has reduced oil production by up to 2.5 million barrels per day, with the UAE cutting output by 500,000 to 800,000 barrels daily. Kuwait has also lowered production by half a million barrels per day, and Iraq by roughly 2.9 million, according to sources familiar with the matter.