Strait of Hormuz disruption could wipe out 9 million b/d as Gulf producers shut wells

Energy historian Daniel Yergin said the disruption could become the largest in terms of daily oil production if it continues for weeks, warning that the shock could reverberate across the global economy

• Strait of Hormuz disruption stalls oil exports and raises prices
• Gulf producers shut wells, storage nears capacity amid conflict
• Analysts predict a daily oil output drop of up to 9 million barrels.

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The disruption around the Strait of Hormuz is beginning to ripple through global energy markets, forcing Gulf producers to shut wells and scramble for storage as exports stall—an upheaval that could become one of the most severe oil shocks in decades, a latest Wall Street Journal report says.

The first shutdown linked to the conflict occurred on Feb. 28 when Bijan Mossavar-Rahmani, chairman of Norwegian oil producer DNO, instructed staff to halt operations at the company’s oil wells in Iraqi Kurdistan after the United States and Israel launched strikes on Iran, the Wall Street Journal said.

Mossavar-Rahmani, who made the decision while flying from New York to Oslo, had previously seen the company’s fields targeted by drones. By the time he landed, production had already stopped, according to the Wall Street Journal.

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At roughly the same time, an audio clip purportedly featuring an Iranian naval officer warning ships not to enter the Strait of Hormuz began circulating in industry messaging groups, the Wall Street Journal reported. Tanker traffic soon slowed sharply, leaving producers across the region struggling to ship crude to global markets.

The impact quickly spread to larger exporters. Iraq was forced to slash production by more than two-thirds as storage filled up, while tanks in Kuwait began nearing capacity, the Wall Street Journal said. The Abu Dhabi National Oil Company also signalled it may curb production to prevent storage facilities from overflowing, according to the Wall Street Journal.

The supply shock has pushed oil prices sharply higher. US crude climbed above $100 a barrel for the first time since the early stages of the Russian invasion of Ukraine in 2022, the Wall Street Journal reported, reflecting mounting fears that the disruption could persist.

Analysts warn the consequences could deepen if the shipping route remains effectively closed. Natasha Kaneva of JPMorgan Chase estimated regional output could fall by more than four million barrels per day in the coming days and possibly reach around nine million barrels per day by the end of March, equivalent to roughly a tenth of global demand, the Wall Street Journal said.

The strait, a narrow waterway between Iran and Oman, handles about one-fifth of the world’s oil and liquefied natural gas shipments, making it one of the most critical energy chokepoints in the global economy, the Wall Street Journal noted. Although it has not been formally blocked, more than 1,000 ships have reportedly been waiting to transit the passage as companies assess security risks following attacks on several vessels, according to the Wall Street Journal.

Energy historian Daniel Yergin said the disruption could become the largest in terms of daily oil production if it continues for weeks, warning that the shock could reverberate across the global economy through higher fuel prices and broader financial stress, the Wall Street Journal reported.