Middle East Crisis Oil Market

Clear: Kuwait is reducing its crude oil production

Kuwait is reducing its crude oil production and refinery capacity, the state-owned Kuwait Petroleum Corporation (KPC) said, according to Reuters.

The decision comes after ongoing Iranian attacks on Kuwait and threats to shipping through the Strait of Hormuz. According to the company, the measure is part of the country's strategy for risk management and business continuity.

KPC said the cutback was purely preventive and would be reviewed as the situation develops.

Growing oil concerns: "Soon everyone will stop production"

Concerns about a global energy crisis are growing as the conflict in the Middle East strangles oil exports in the region. Now sources are warning Reuters that major producers such as Saudi Arabia and the United Arab Emirates will be forced to stop their deliveries.

– Sooner or later, everyone will shut down production if no ships arrive, says a source at a state oil company in the region.

Analysts also warn that it could take “days, weeks or months” before a plant is fully operational again.

For companies with exposure to the region, the risks include shortages of key components, higher costs and squeezed margins, writes Bloomberg.

Goldman Sachs warns that the price of WTI oil could rise to over $100 a barrel next week if no signs of a solution appear before then. 

Analysis: No energy crisis yet – could be more painful

A worst-case scenario for the world economy is that the Strait of Hormuz remains blocked for several months. In that case, a deficit of 2 million barrels of oil per day can be expected. This writes the FT's Camilla Palladino.

She points to statistics from Stifel, which showed that a similar deficit existed between 2007 and 2009.

“The price of oil then peaked at $147 per barrel, equivalent to $222 in today’s money,” she writes.

Bloomberg’s Javier Blas writes that an energy crisis is a real risk but that “we are not there yet.”

He believes that so far the war has only affected natural gas and oil.

“The risk is, of course, that the conflict continues, intensifies, and spreads to coal and electricity. Then the situation could become significantly more painful. It could also develop into a real energy crisis – but only in a worst-case scenario.”

If the strait is not opened and the oil-producing countries attack each other’s facilities in the region, “the price of oil could likely rise well above $100,” he continues.