Kuwait announced on Saturday that it has reduced its oil production and refining output as tankers will not be able to pass through the Persian Gulf due to threats from Iran.
The Arab monarchy did not specify the number of barrels per day it has reduced, but spoke of the output cut as a precautionary step that will be “reviewed as the situation develops.”
Kuwait is the fifth biggest oil producer in OPEC. It produced approximately 2.6 million barrels each day in January. The state-owned Kuwait Petroleum Corporation said it “remains fully prepared to restore production levels once conditions allow.”
The Iran war caused a significant upheaval in the world energy supply, as the oil prices rose by 35 percent this week. Ship owners have halted the transit of tankers through the most important Strait of Hormuz due to their fear that the ship will be attacked by the Iranian forces.
The Gulf Arab oil producers, such as Kuwait, also export their barrels using the Strait. The Persian Gulf has a narrow waterway that serves as the only passage for entering or exiting. The Strait exports about 20 percent of the world’s oil to consumers.
The tankers are not moving, and the oil barrels are piling up in the Middle East with nowhere to go. Gulf Arab nations have no choice but to reduce output because they lack space to place barrels.
Iraqi officials told Reuters on Tuesday that Iraq is already reducing its daily production by 1.5 million barrels because it is running out of storage capacity.
Natasha Kaneva, Head of Global Commodities Research at JPMorgan, told clients in a Friday note, “The market is shifting from pricing pure geopolitical risk to grappling with tangible operational disruption.”
Kaneva said in a note on last Sunday that the Gulf Arab nations will run out of storage capacity and close oil production in case the U.S.-Iran war continues beyond the third week.
She added that this would soar the world benchmark Brent oil prices to well above $100 per barrel. JPMorgan estimates the reduction of production might rise to over 4 million barrels per day by the end of next week if the Strait of Hormuz remains closed.
Crude oil has registered the largest weekly rise in the futures exchange record on Friday. Brent futures increased 8.52 percent, or $7.28, to settle at $92.69 per barrel. West Texas Intermediate futures soared 12.21, or $9.89, to close at $90.90 per barrel.
U.S. crude shot up 35.63 percent, the largest weekly increase in the history of the futures contract in its existence since 1983. Brent surged 28 percent, the biggest weekly increase since April 2020.
The Iran war has also interfered with the natural gas supply in the world. Qatar shut down liquefied natural gas production on Monday due to attacks by Iran. Qatar is a leading exporter of LNG in the world, with approximately 20 percent.
LNG is natural gas that is chilled into liquid form to make it loadable into tankers and be exported worldwide. Electricity is produced, and homes are heated using natural gas.
