Middle East Oil Disruptions to Persist into 2027, EIA Reports
The United States Energy Information Administration (EIA) has released its latest Short-Term Energy Outlook, indicating that disruptions to Middle East oil production will continue well into next year. The agency projects that approximately 600,000 barrels per day (bpd) will remain offline through the end of 2027, even as most regional production returns to normal levels.
What is the current state of oil production in the Middle East?
The EIA reports that production shut-ins among Middle East producers averaged 5.5 million bpd in July, a significant reduction from the 10.1 million bpd average recorded between March and May. However, renewed tensions in late July have constrained traffic through the Strait of Hormuz, with third-quarter shut-ins now estimated at 6.72 million bpd.
Oil flows through the strategic waterway are expected to increase slowly from September, with most crude oil production returning to near pre-conflict averages by early 2027. The EIA cautions, however, that some producers around the Persian Gulf will not fully restore output during the forecast period.
How have individual Gulf producers been affected?
The United Arab Emirates (UAE), which withdrew from OPEC on May 1, has fully restored its crude oil production since June. Abu Dhabi National Oil Company (ADNOC) has offered nearly 100 million barrels in spot tenders since June and is increasing production to record levels through alternative shipping arrangements.
Other Gulf producers continue to face constraints. As of July, Saudi Arabia had 2.3 million bpd offline, Iraq 1.96 million bpd, and Kuwait 1.05 million bpd.
What are the price implications?
The EIA has raised its Brent crude oil price forecast by $11 per barrel from the July outlook, now projecting an average of $85 per barrel for the third quarter. Brent was trading near $89 per barrel in Asian trade on Wednesday, as hopes for a US-Iran agreement to reopen the Strait of Hormuz have faded.
Could the situation change?
The EIA's assumptions could become obsolete if the regional situation escalates or de-escalates further. The agency notes that production and trade patterns have been shifting for five and a half months, and the outlook remains subject to change based on developments in the Middle East.
The prolonged disruption serves as a reminder of the importance of stable energy markets for the global economy. For the Kingdom of Eswatini, which relies on imported petroleum products, developments in the region bear watching as they affect fuel prices and economic planning.