Gulf producers plug nearly half pre-war oil output

• 11.8 million bpd shut in, Rystad says
• 75% from Saudi, Iraq and Kuwait
• Closures create risk of well damage

More than a 10th of the world’s daily crude supply is trapped underground as shipping disruptions through the Strait of Hormuz have forced six Gulf states to plug wells, analysts estimate.

Sites that would typically produce 11.8 million barrels per day of oil have been “shut in” after exports ground to a halt and storage rapidly filled, according to research group Rystad Energy.

Around three-quarters of this comes from Saudi Arabia, Iraq and Kuwait.

Shutting in an oil well means physically closing a wellhead to stop production. Such action can usually be reversed, but the longer a facility is left the more likely it becomes that the well could be damaged and any restart delayed.

Saudi Arabia has plugged an estimated 3.8 million bpd, accounting for a third of total shut-ins, Rystad said. Iraq has lost about 2.8 million bpd and Kuwait 2 million bpd.

These states – alongside Qatar, the UAE and Bahrain — produced a total of 24.2 million bpd before the US-Israeli war on Iran began on February 28.

An uneasy ceasefire has been tested in recent days by exchanges of fire between the two sides.

The conflict has ground traffic to a virtual halt through the strategically important strait, which lies between Iran and Oman. Before the war, about 120 vessels and a fifth of global oil supplies would pass through the narrow waterway each day.

In April and May, the number of ships crossing the strait was below 20 percent of pre-conflict levels, according to Rystad, despite multiple rounds of talks to reopen it. A few more oil tankers have crossed in recent days, analysts have said, but traffic is still well down.

Gulf states have been affected differently by the disruption.

Iraq’s energy revenues have collapsed: April oil export receipts totalled just $1 billion, from a pre-war level of $6.8 billion in February. Export receipts are expected to have fallen further in May.

Saudi Arabia, however, reported oil export revenue of $24.6 billion in March, the highest since 2022. The kingdom has benefited from higher oil prices and exports through its East-West pipeline to Yanbu on the Red Sea coast.

Further reading:

• Refinery underinvestment exposed by oil crisis, Aramco exec says
• Frank Kane: The Gulf takes one for the team in Hormuz
• Hormuz disruption fuels Libya oil comeback

A billion barrels of oil per day have now been lost entirely, triggering the release of huge reserves and cuts to demand, such as mass summer flight cancellations by European airlines.

“Cumulative losses have now reached 1 billion barrels and are on track to nearly double by year-end under our base case, which still assumes a narrow US-Iran deal in June and a phased reopening of the Strait of Hormuz from mid-July,” said Aditya Saraswat, Rystad’s research director for the Middle East and North Africa.

“But that base case is under pressure. Each additional month of conflict adds roughly 350 million barrels to cumulative losses, with a growing share that will never come back, as mature fields in Iraq and Kuwait face longer restart timelines than most market participants are pricing in.”