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- Saudi Arabia raised oil production to 10.882 million barrels per day in February as a contingency plan ahead of the conflict escalation in the Middle East, while OPEC kept its global demand growth forecast unchanged.
- Oil prices surged nearly 4% after fresh attacks on ships in the Strait of Hormuz, which has almost ground to a halt since the conflict began, blocking roughly one fifth of the world’s oil supply.
- The IEA announced a record release of 400 million barrels from emergency reserves, but analysts say it falls far short of the estimated 20 million barrels per day being disrupted.
The world’s oil markets are facing one of their most serious disruptions in years.
Following the escalations that began on February 28, oil supplies from the Middle East have been severely disrupted, prices have jumped sharply, and world leaders are scrambling to find a response. Here is a breakdown of what is happening and what it means.
Saudi Arabia Boosted Production Before the Conflict
Before the conflict began, Saudi Arabia already planned a contingency strategy. OPEC reported that KSA hiked its oil production last month to 10.88 million barrels per day, up from 10.10 million barrels per day in January. The kingdom also increased how much oil it was sending to market, reaching 10.111 million barrels per day. ⁽¹⁾
Reports also show that Saudi Arabia’s contingency plan was to build up supply in case of a conflict escalation that could cut off oil shipments from the Middle East.
But the KSA wasn’t new to this plan. Saudi Arabia has a long history of stepping in during supply disruptions, either by adding barrels to the market or pulling them back when there is too much oil available. ⁽²⁾
Other members of OPEC+ also saw output rise in February to an average of 42.72 million barrels per day, an increase of 445,000 barrels per day from January.
OPEC Holds Its Demand Forecast
Despite the ongoing conflict and uncertainty, OPEC kept its forecast for global oil demand growth unchanged. The group expects demand to grow by 1.38 million barrels per day this year. This estimate is higher than forecasts from other organizations, including the International Energy Agency. ⁽³⁾
OPEC acknowledged that the situation needs to be watched closely. “Ongoing geopolitical developments warrant close monitoring,” the group said in its monthly report, though it noted it may be too early to say what impact the conflict will have on demand growth.
Oil Prices Surge as the Strait of Hormuz Comes Under Threat
Oil prices climbed 8% yesterday above $100 then slightly pulled back, with Brent now trading just shy below $100 while WTI is at $94 at the time of writing. The jump came after fresh attacks on ships in the Strait of Hormuz, a narrow waterway between Iran and Oman through which roughly one fifth of the world’s oil supply passes.
Shipping through the strait has grounded to a near halt since the conflict began. At least 14 vessels have been struck in the region, with three more being hit on Wednesday alone. The disruption has already sent oil prices up 25% since the conflict began, reaching their highest levels seen since 2022.
US President Donald Trump earlier has said the US is prepared to escort tankers through the strait when needed. However, the US Navy has so far refused requests from the shipping industry for military escorts, citing the high risk of attacks. ⁽⁴⁾
The IEA Announces Record Release of Oil Reserves
In response to the crisis, the International Energy Agency announced the release of 400 million barrels of oil from emergency reserves held by its 32 member countries, the largest such release in the agency’s history. The decision was backed unanimously. ⁽⁵⁾
For comparison, the IEA released 182.7 million barrels in 2022 following Russia’s invasion of Ukraine, which was itself a record at the time. The new release is more than double that amount. ⁽⁶⁾
The announcement was made as French President Emmanuel Macron chaired a meeting of G7 leaders to discuss the energy crisis. President Trump, who authorized airstrikes in the Middle East, appeared in the G7 video saying, “I think we are having a tremendous impact on the world.” Trump also said he agreed with the IEA’s decision.
Markets Are Skeptical the Release Will Be Enough
Despite the record size of the reserve’s release, oil prices continued to rise on Wednesday. Many analysts and traders weren’t convinced of the plan, believing it wouldn’t be enough to control prices. The 400 million barrels are roughly equal to about four days of global oil production, or 16 days of the crude that normally passes through the Gulf.
The key question is not just how much oil is released, but how fast it is. If 100 million barrels were released over a single month, that would amount to around 3.3 million barrels per day. A fraction of the estimated 20 million barrels per day is currently being disrupted by the conflict. ⁽⁷⁾
The US tried to ease supply concerns by issuing a 30-day license for countries to buy Russian oil and petroleum products stranded at sea. The license was issued in what Treasury Secretary Scott Bessent said was a step to stabilize global energy markets.
Supply Disruptions Spread Across the Region
The conflict is not just causing damage in the Strait of Hormuz, but also the GCC nation’s production facilities.
Iraq, Kuwait and the UAE have already cut oil production, with Saudi Arabia now trying to reroute most of its oil exports through its port at the Red Sea to avoid passing through the blockade. But shipping data shows those flows are still far below what is needed to make up for lost Hormuz volumes. ⁽⁸⁾
