Global Energy Markets in Disarray as Strait of Hormuz Disruption Continues

The escalating conflict in the Strait of Hormuz is having a profound impact on global energy markets, with Gulf producers forced to shut wells and scramble for storage as exports stall. According to a recent report by the Wall Street Journal, this disruption could become one of the most severe oil shocks in decades.

First Reported Shutdown

On February 28, Bijan Mossavar-Rahmani, chairman of DNO (Norwegian oil producer), instructed staff to halt operations at the company's oil wells in Iraqi Kurdistan following strikes on Iran by the United States and Israel. This decision was made while Mossavar-Rahmani was en route from New York to Oslo, after previously witnessing the company's fields targeted by drones.

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Regional Production Slashed

As a result of the conflict, Iraq has been forced to slash production by more than two-thirds, while Kuwait's storage facilities are nearing capacity. Abu Dhabi National Oil Company has also signaled a potential reduction in production to prevent storage facilities from overflowing.

Oil Prices Surge

The supply shock has pushed oil prices sharply higher, with US crude climbing above $100 a barrel for the first time since the early stages of the Russian invasion of Ukraine in 2022. Analysts warn that the consequences could deepen if the shipping route remains effectively closed.

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Potential Consequences

Natasha Kaneva of JPMorgan Chase estimates regional output could fall by more than 4 million barrels per day in the coming days and possibly reach around 9 million barrels per day by the end of March, equivalent to roughly a tenth of global demand. Energy historian Daniel Yergin warns that the disruption could become the largest in terms of daily oil production if it continues for weeks, with potential reverberations across the global economy through higher fuel prices and broader financial stress.