Middle East conflict wipes out 1 billion barrels of crude supply, says Rystad Energy

By Romel S. Gurky

The conflict involving Iran has removed about 1 billion barrels of crude oil from global markets over the past three months, making it the most severe oil supply disruption in modern history, according to Rystad Energy.

The energy consultancy said cumulative supply losses could nearly double to 2 billion barrels by the end of 2026 under its base-case scenario, which assumes a limited US-Iran agreement in June and a gradual reopening of the Strait of Hormuz from mid-July.

Rystad estimated that around 11.8 million barrels per day (bpd) of production remains shut in across six Gulf producers, with Saudi Arabia accounting for 3.8 million bpd of lost output, followed by Iraq at 2.8 million bpd and Kuwait at 2 million bpd.

Brent crude was trading around US$85 per barrel as renewed military action between Iran and Israel undermined hopes for a diplomatic breakthrough.

According to Rystad, oil production from the six Gulf producers has fallen to 12.4 million bpd from 24.2 million bpd before the conflict began. Iraq has been among the hardest hit due to its heavy reliance on exports through the Strait of Hormuz, while Saudi Arabia has partly offset disruptions through exports via its East-West Pipeline to Yanbu.

Shipping activity through the Strait of Hormuz remains well below normal levels. Vessel traffic has recovered only marginally from lows reached in March and remains below 20% of pre-conflict volumes. LNG shipments through the waterway have almost disappeared, while crude tanker movements remain significantly constrained.

Alternative export routes through Saudi Arabia's Yanbu terminal and the UAE's Fujairah terminal have helped ease some supply disruptions, but Rystad said these routes cannot fully replace Hormuz capacity. Combined bypass exports have recently fallen to around 4.7 million bpd following infrastructure damage at Fujairah and logistical constraints at Yanbu.

The report also highlighted the impact of a US blockade on Iranian ports. Iranian crude exports fell from 1.64 million bpd in March to 1.34 million bpd in April and are expected to drop below 500,000 bpd in May. China's imports of Iranian crude have declined by more than 500,000 bpd, although floating storage of 150-160 million barrels continues to provide a temporary buffer.

Rystad expects oil supply to recover gradually once the Strait of Hormuz reopens, with regional production projected to rise to 17.3 million bpd in August and 20.9 million bpd in September. However, full normalization is not expected until January 2027, with mature oil fields in Iraq and Kuwait likely to require longer restart periods.

"Each additional month of conflict adds roughly 350 million barrels to cumulative losses," said Aditya Saraswat, Rystad Energy's MENA research director, noting that some lost production may never be recovered due to the prolonged shutdown of mature fields.

Editing by Alexander Ginting