Middle East Oil Restart Hinges On Strait Of Hormuz As Logistics Stall 11M Bpd Recovery

(MENAFN- Khaleej Times) Up to 11 million barrels per day of oil production currently shut in across the Middle East cannot be brought back online until export logistics normalise, according to Wood Mackenzie, with shipping security through the Strait of Hormuz emerging as the critical bottleneck.

The initial phase of any recovery hinges less on upstream capacity and more on restoring confidence in maritime transit.“A 'workable system' of transit and shipowner confidence in the security of the transiting vessels is essential,” said Alan Gelder, senior vice-president for refining, chemicals and oil markets at Wood Mackenzie. This includes access to insurance, trade financing, and sustained vessel movements both out of and into the Gulf.

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While laden tankers have a strong incentive to move quickly once security assurances are in place, uncertainty remains over how many ships can transit the Strait safely. Inbound traffic presents an even bigger challenge.“Ballasting vessels are unlikely to enter via the Strait of Hormuz any sooner than a 'just in time' logistics basis, at risk of becoming trapped if hostilities resume,” Gelder said, adding that onshore storage drawdowns are limited by port loading capacity.

As exports gradually resume, available storage space will allow upstream production and refining activity to restart. Storage capacity varies widely across the region, ranging from around a month's worth of output in Saudi Arabia and the UAE to less than two weeks in Iraq and Kuwait.

Fraser McKay, head of upstream analysis at Wood Mackenzie, said shipping constraints will dominate the early stages of recovery.“The initial recovery from major fields will be more than sufficient to meet the ramp-up of export volumes. Shipping logistics will remain the constraint on upstream recovery for several weeks,” he said.

Once those constraints begin to ease, attention will shift back to production capabilities, revealing diverging recovery paths by country.“More than half of most field's previous supply levels could be restored before shipping constraints ease. Thereafter, different recovery profiles will emerge,” McKay noted, warning that countries such as Iraq may take six to nine months to return to prior output levels even under unconstrained conditions.

Despite limited infrastructure damage in some countries, downstream repair needs and operational risks could further delay a full rebound. McKay highlighted unexpected benefits from the extended shut-ins, calling them“the largest and longest build-up test... in history,” which could improve reservoir knowledge and enhance well deliverability.

However, operators face risks if pressured to restart too aggressively.“Operators hastened by regulators and governments to restore production too rapidly, will risk doing more long-term damage to foundational assets,” McKay said.

A two-week ceasefire is also weighing on global gas markets, although Wood Mackenzie said little has fundamentally changed for LNG supply so far.“The ceasefire means it may be possible for the 14 trapped laden LNG cargoes in the Gulf to exit the Strait of Hormuz and provide some relief,” said Tom Marzec-Manser, head of Europe gas and LNG.

Yet a meaningful shift in supply would require a restart of Qatar's Ras Laffan complex, a move Wood Mackenzie says remains uncertain during a temporary ceasefire.

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