Kuwait Cuts Oil Production As Strait Of Hormuz Closure Disrupts Global Energy Markets What Does This Mean? Explained

(MENAFN- Live Mint) Kuwait, the fifth-largest oil producer within the Organisation of the Petroleum Exporting Countries (OPEC), announced on Saturday that it has curtailed both oil production and refining output after tanker traffic through the Persian Gulf, Starit of Hormuz, came to a near-complete standstill. The Arab monarchy cited Iranian threats to safe navigation through the Strait of Hormuz as the cause, describing the output reduction as a precautionary measure that would be“reviewed as the situation develops.”

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Kuwait did not specify the volume of barrels per day being withheld from the market. The state-owned Kuwait Petroleum Corporation, however, sought to reassure global buyers, stating that it "remains fully prepared to restore production levels once conditions allow." In January, the country was producing approximately 2.6 million barrels per day.

Oil Prices Surge 35% - Biggest Weekly Gain in Futures Trading History

The announcement arrives against the backdrop of a staggering rally in crude prices. On Friday, US crude futures logged their largest single-week gain since the contract's inception in 1983 - rising 35.63% to close at approximately ₹7,813 per barrel (West Texas Intermediate). Brent crude, the global benchmark, surged 28% over the same period - its steepest weekly increase since April 2020 - settling at approximately ₹7,953 per barrel after climbing ₹625 in a single session.

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The catalyst is the ongoing US-Iran conflict, which has effectively paralysed shipping through the Strait of Hormuz. The narrow waterway - the sole maritime exit from the Persian Gulf - handles approximately 20% of global oil consumption each day. With ship owners fearing Iranian attacks, tankers have halted transit entirely, creating an acute bottleneck that analysts say the market is only beginning to price in.

“The market is shifting from pricing pure geopolitical risk to grappling with tangible operational disruption”, Natasha Kaneva, Head of Global Commodities Research, JPMorgan

Barrels Piling Up With Nowhere to Go - Iraq Already Cuts 1.5 Million BPD

The consequences of the blockade are already cascading through the region. With tankers stranded, oil is accumulating at Gulf Arab export terminals faster than storage infrastructure can absorb it. Producers are being forced to throttle output simply because they have run out of places to put their barrels.

Iraq has already taken the most drastic action of any Gulf producer, cutting output by 1.5 million barrels per day as storage capacity fills to capacity, Iraqi officials told Reuters on Tuesday. Kuwait's announcement signals that the storage crunch is now spreading to its neighbours.

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JPMorgan estimates that total production cuts across the Gulf could exceed 4 million barrels per day by the end of next week if the Strait of Hormuz remains closed. Kaneva warned in a note last Sunday that if the US-Iran war endures beyond three weeks, Gulf Arab countries could exhaust storage capacity entirely and be compelled to shut down production wholesale - a scenario that would propel Brent crude above ₹8,590 per barrel (US $100).

Qatar LNG Shutdown Deepens the Crisis - Natural Gas Markets Rattled

The disruption extends well beyond crude oil. Qatar, one of the world's largest exporters of liquefied natural gas (LNG), halted production on Monday following Iranian attacks. Qatar accounts for approximately 20% of global LNG exports - a commodity relied upon for electricity generation and domestic heating across Asia, Europe, and beyond. The simultaneous disruption to both oil and gas supplies has compounded the energy shock facing import-dependent economies worldwide.

What Does the Strait of Hormuz Crisis, Kuwait Cutting Oil Production Mean for India?

For India, the crisis is not a distant geopolitical event - it is a direct economic threat with a specific Kuwaiti dimension. Kuwait alone accounts for 10.1% of all crude oil and condensate exports flowing through the Strait of Hormuz (US Energy Information Administration, Q1 2025).

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Within India's own import basket, Kuwait supplies approximately 3% of the country's total crude imports - making it the fifth-largest supplier to India, behind Russia (36%), Iraq (20%), Saudi Arabia (13%), and the UAE (9%) (PPAC and ICRA Research, FY2025). In dollar terms, India imported $3.09 billion (roughly ₹26,574 crore) worth of crude oil from Kuwait in 2024 alone (UN COMTRADE database).

Taken together, imports from Iraq, Saudi Arabia, Kuwait, and the UAE that are routed through the Strait of Hormuz account for approximately 45–50% of India's total crude oil imports (ICRA Research, citing PPAC data, June 2025).

Kuwait's production cut directly shrinks that pool. Approximately 2.5–2.7 million barrels per day of India's crude imports - largely sourced from Kuwait, Saudi Arabia, Iraq, and the UAE - pass through the Hormuz corridor MOPEDO, according to the Petroleum Planning & Analysis Cell.

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India is the second-largest destination for crude transiting the Strait, receiving 14.7% of all flows as of Q1 2025 (US EIA, cited by Visual Capitalist) - second only to China. The country imports approximately 88% of the crude oil it consumes (PPAC, Ministry of Petroleum & Natural Gas), spending $137 billion (roughly ₹11.78 lakh crore) on crude imports in the fiscal year ended March 2025 (Ministry of Petroleum & Natural Gas). Roughly 60% of India's natural gas imports also transit the Strait (ICRA Research, June 2025) - meaning the blockade is simultaneously squeezing both oil and gas supply lines into the country.

Every $10 Rise in Crude Costs India $13–14 Billion a Year

The arithmetic of the price surge is punishing. Every $10 per barrel increase in global crude prices adds approximately $13–14 billion ( ₹1.12–1.20 lakh crore) to India's annual import bill (ICRA Limited; corroborated by former NITI Aayog chief Amitabh Kant). DBS Bank economists calculate that the same $10 rise widens India's current account deficit by roughly 0.35% of GDP (DBS Bank research note).

With Brent already up 28% this week - and JPMorgan warning of a potential breach of $100 per barrel if the Strait remains closed - the cumulative hit to India's trade balance could be severe. If Brent climbs to $120 per barrel, India's oil trade deficit could balloon to around $220 billion ( ₹18.92 lakh crore), potentially pushing the current account deficit above 3% of GDP (DSP Mutual Fund Netra Report, March 2026).

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The rupee is already buckling. The Indian currency breached 92 against the US dollar on 4 March, touching an all-time low of 92.8, even as the average price of India's crude basket surged from $63.08 per barrel in January to $85.43 in March (Petroleum Planning and Analysis Cell, March 2026) - a rise that preceded this week's most dramatic moves.

India's Strategic Reserves: A 40-Day Buffer, No More

India is not entirely without cushion. The country holds approximately 100 million barrels in commercial crude stocks - including strategic petroleum reserves at Mangalore, Padur, and Visakhapatnam - sufficient to cover roughly 40 to 45 days of requirement if Hormuz flows are disrupted entirely (Sumit Ritolia, Lead Research Analyst, Refining & Modelling, Kpler).

Further, United States Secretary of the Treasury Scott Bessent on 6 March informed, "To enable oil to keep flowing into the global market, the Treasury Department is issuing a temporary 30-day waiver to allow Indian refiners to purchase Russian oil... India is an essential partner of the United States, and we fully anticipate that New Delhi will ramp up purchases of U.S. oil. This stop-gap measure will alleviate pressure caused by Iran's attempt to take global energy hostage."

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