A prolonged conflict between the US and Iran could slash West Asia crude oil output by as much as 70 per cent in a worst-case scenario, energy research firm Rystad Energy said.
In a statement, the firm said supply disruptions linked to the conflict could push regional production down to about six million barrels per day (bpd), from roughly 21 million bpd before the crisis.
“In just over a week since the US-Israeli strikes on Iran triggered the closure of the Strait of Hormuz, more than 12 million barrels of oil equivalent per day (boepd) of West Asia oil and gas production have been taken offline, including seven million barrels per day of crude supply, equivalent to roughly seven per cent of total global liquids demand,” it said.
Rystad Energy noted that Iraq has been the hardest hit, with more than 60 per cent of its pre-conflict oil production curtailed.
“Still, the more alarming reality is that the worst is likely yet to come, with Rystad Energy analysis showing that in a worst-case scenario, Middle East crude output could fall to approximately six million bpd, a region-wide reduction of 70 per cent from the pre-conflict baseline,” it added.
Middle East and North Africa (MENA) research director Aditya Saraswat said further cuts from major West Asia oil producers cannot be ruled out as storage tanks fill up, bypass infrastructure approaches its limits, and the conflict shows no sign of a near-term resolution.
“Although the likelihood of oil supply falling to six million bpd is not our central case, it is still very much in the cards.
“If and when the crisis ends, it will take months to restore operations to pre-conflict levels, with questions over infrastructure integrity and a recalibrated geopolitical order still at play,” he said.
According to the firm, Kuwait and Iraqi fields account for about 1.5 million bpd of output that remains online mainly to meet domestic refinery feedstock demand.
“Kuwait’s refineries have a combined capacity of 1.42 million bpd, but domestic demand absorbs only about 360,000 bpd. With no export routes available, oil product storage is filling up rapidly even at reduced throughput rates,” it said.
Rystad Energy said that when the storage tanks are full, refineries in Kuwait and Iraq will have to slow operations, requiring less crude oil and forcing producers to cut output further.
The firm also said about 6.5 million bpd of supply relies on bypass routes via the United Arab Emirates’ ADCOP pipeline to Fujairah and Saudi Arabia’s East-West pipeline to Yanbu, which remain operational but face risks after attacks on infrastructure and constraints at Fujairah due to limited loading capacity and tanker availability.
It further said that in Saudi Arabia, grade implications are as significant as the loss of volume, with Arab Heavy and Arab Medium accounting for most of the 2.2 million bpd offline and serving as key grades for complex Asian refineries configured to process medium-to-heavy sour crude.
“Saudi Arabia is still offering Arab Light and Arab Extra Light via Yanbu spot tenders, but Arab Medium has effectively disappeared from the market,” it said.
Rystad Energy said Asian refineries that cannot switch to lighter crude without operational penalties are now competing for heavy alternatives from the Americas and West Africa, increasing freight costs, delivery times, and feedstock uncertainty in an already stressed market.
“Additionally, if Iranian barrels are eliminated from the market due to sustained attacks on its oil and gas infrastructure, their ideal replacements, Arab Heavy and Arab Medium, would no longer be available,” it added.
According to Saraswat, Russia could emerge as a potential beneficiary, as increased drilling activity may raise Urals supply by about 200,000 to 300,000 bpd, though this would cover only a fraction of any potential loss of Iranian crude.
“As far as our analysis shows, there are no viable replacements for Arab Heavy and Arab Medium in the near term, triggering a historic supply crisis if the conflict is not resolved in the coming weeks,” he said.
