Persian Gulf blocks routes and oil reacts strongly

Kuwait reduces oil production after blockage in the Strait of Hormuz and global tension sends energy prices soaring

The Kuwaiti government announced this Saturday (7) that it has decided to reduce its oil production and reduce the pace of refining operations. The measure comes after the closure of maritime routes in the Persian Gulf, a direct consequence of Iran’s threats against vessels trying to cross the Strait of Hormuz.

The decision marks another chapter in the growing energy crisis caused by the military escalation involving Tehran and Western forces. In recent days, oil tankers have stopped circulating through the region, considered one of the most important arteries of the global energy system. As a result, barrels began to accumulate in producing countries, while international oil prices soared.

According to Kuwaiti authorities, the reduction in production is not definitive. The country classified the decision as a preventive strategy in the face of maritime insecurity in the region. Still, the measure raises a warning about the fragility of global energy supplies amid the worsening crisis in the Middle East.

Kuwait confirmed that the reduction in volume produced is because tankers are unable to cross the Persian Gulf safely. Shipowners and shipping companies suspended sailings after Iran threatened to attack vessels crossing the Strait of Hormuz.

Authorities in the country did not disclose how many barrels per day were removed from production. However, the government described the cut as a temporary action that could change as the military situation evolves.

The state-owned Kuwait Petroleum Corporation highlighted that it maintains an operational structure ready to quickly resume the previous production rate.

According to the company, “remains fully prepared to reestablish production levels as soon as conditions allow”.

Kuwait occupies a relevant position in the global oil industry. It is currently the fifth largest producer among members of the Organization of Petroleum Exporting Countries (OPEC). In January, the country recorded production of approximately 2.6 million barrels per day.

Therefore, any significant change in this volume could quickly reverberate in international markets.

The crisis in the Strait of Hormuz explains much of the current turmoil. This narrow sea passage connects the Persian Gulf to the Indian Ocean and serves as the main oil export route for producing countries in the region.

In practice, it is the only maritime outlet for the major Gulf exporters to transport their production to the rest of the planet.

Around 20% of all oil consumed in the world passes through this maritime corridor. Therefore, any interruption generates immediate effects on the international market.

With the route blocked and fear of attacks, shipping companies decided to suspend oil transport in the region. As a result, barrels began to pile up at storage terminals in the Middle East.

This logistical bottleneck creates an additional problem. Without ships available to transport the oil, producing countries are forced to reduce the rate of extraction to avoid the collapse of storage capacity.

Kuwait is not alone in facing this dilemma. Other important producers also began to reduce production due to a lack of space to store oil.

Iraqi authorities reported that the country has already had to cut around 1.5 million barrels per day precisely for this reason.

The situation illustrates how a regional conflict can generate chain impacts on the global economy. Without maritime transport, the oil produced remains idle. With reservoirs full, production needs to fall.

Meanwhile, consumers around the world face increasingly high energy prices.

Experts say that the international energy commodities market is undergoing an important change in behavior.

Previously, rising prices were mainly driven by geopolitical risk. Now, real supply disruptions are beginning to dictate the pace of the market.

Natasha Kaneva, head of global commodities research at JPMorgan, explained this transformation in a statement sent to clients.

According to her, “The market is changing its approach from relying purely on pricing geopolitical risk to dealing with tangible operational disruptions”.

In other words, the crisis stopped being just an expectation of instability and started causing concrete impacts on energy production and transport.

Oil price soars and records historic week

The effects of this tension quickly appeared in international oil prices.

On Friday, the futures market recorded one of the biggest rises ever seen. A barrel of Brent, a global reference, rose 8.52%, equivalent to US$7.28, ending the session at US$92.69.

West Texas Intermediate (WTI), the main reference in the United States, advanced even further. The futures contract soared 12.21%, increasing US$9.89, closing at US$90.90 per barrel.

When looking at the weekly performance, the scenario becomes even more impressive. American crude oil rose 35.63%, the biggest increase since the creation of the futures contract in 1983.

Brent also rose sharply, with a gain of 28% in the week — the biggest jump since April 2020, a period marked by the energy turbulence caused by the pandemic.

These numbers show how quickly the market reacted to the threat of a prolonged global supply disruption.

Analysts warn that prices could continue to rise if the conflict persists.

JPMorgan calculates that production cuts among Gulf countries could exceed 4 million barrels per day by the end of next week if the Strait of Hormuz remains closed.

Furthermore, the financial institution assesses that producers could completely exhaust their storage capacity if the war between the United States and Iran lasts more than three weeks.

If this scenario is confirmed, the price of Brent oil could surpass the US$100 per barrel mark.

For economies dependent on energy imports, this possibility represents a significant risk of inflation and economic slowdown.

The energy crisis is not limited to oil. The conflict also directly affected the global natural gas market.

Qatar, one of the largest exporters on the planet, suspended the production of liquefied natural gas (LNG) last Monday following Iranian attacks.

The impact of this decision could be wide-ranging. Approximately 20% of global LNG exports come from Qatar.

Liquefied natural gas is produced when natural gas is cooled until it turns into a liquid. This process reduces the volume of the substance and allows it to be transported in tankers to different regions of the world.

This fuel is essential for generating electricity and also for heating homes in many countries.

Therefore, any prolonged interruption in supply could further worsen the global energy crisis.

The combination of military tensions, blocked maritime routes and production cuts highlights an old vulnerability of the global economy: the concentrated dependence on a few energy-producing regions.

At the same time, experts note that geopolitical conflicts continue to be capable of causing immediate supply shocks.

Given this scenario, governments and markets monitor every movement in the Persian Gulf. After all, as long as the Strait of Hormuz remains closed, the risk of a deeper energy crisis will remain on the international radar.

With information from CNBC*