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War cuts 10m bpd, triggers biggest global oil shock in decades
Higher crude prices are expected to push up fuel, transport and manufacturing costs across major importing economies, complicating monetary policy decisions
- PUBLISHED: Sun 22 Mar 2026, 8:47 PM UPDATED: Sun 22 Mar 2026, 10:52 PM
[Editor's Note: Follow Khaleej Times live blog amid US-Israel-Iran war for the latest regional developments.]
The escalating Middle East war has triggered one of the largest oil supply disruptions in modern history, knocking more than 10–12 million barrels per day (bpd) offline — roughly 10 per cent of global demand — and pushing crude markets into their most fragile position since the 1970s energy crises, according to international energy agencies and investment bank estimates.
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Benchmark Brent crude surged above $119 a barrel this week as attacks on regional energy infrastructure and shipping routes forced major Gulf producers to curtail output and suspend exports, while the closure of the Strait of Hormuz sharply restricted the world’s most critical oil transit corridor.
Energy analysts say the scale of the disruption is unprecedented in its speed and breadth. Combined production losses across Iraq, Saudi Arabia, Kuwait and the UAE have removed more than 12 million barrels of oil equivalent per day from global markets, with exports constrained by blocked shipping routes and rapidly filling storage capacity.
Iraq’s crude production has fallen by nearly 70 per cent, dropping from more than 3.3 million bpd to below 900,000 bpd after export terminals were forced offline. Saudi Arabia has reduced output to around 8 million bpd, compared with more than 10 million bpd before the conflict, while Kuwait and the UAE have also scaled back production amid logistical bottlenecks and infrastructure risks.
The International Energy Agency warned that the disruption represents the most severe interruption to Gulf oil flows on record, with alternative pipeline routes unable to compensate for the loss of tanker traffic through the Strait of Hormuz.
Analysts at Rystad Energy said a worst-case scenario could see up to 70 per cent of regional crude output temporarily curtailed, particularly if offshore facilities remain exposed to attack risks or export terminals stay inaccessible for extended periods.
Restarting damaged fields could take weeks, and in some cases longer, depending on infrastructure conditions.
Investment banks say the supply shock is already reshaping price expectations well beyond the immediate crisis window. Goldman Sachs said risks to oil prices remain “skewed to the upside” both in the near term and through 2027, noting that historical supply shocks of comparable scale have often produced prolonged price rallies rather than short-lived spikes.
The bank warned that oil could remain above $100 per barrel for an extended period if transport routes remain restricted and production capacity suffers structural damage. In a more extreme scenario, Brent could test or even exceed its 2008 record highs if disruptions persist across multiple Gulf exporters simultaneously.
Goldman Sachs said its baseline assumption is that flows could begin recovering gradually once shipping routes reopen, with prices easing toward the $70 range by late 2026 but emphasised that this outlook depends heavily on how quickly infrastructure and export corridors are restored.
“The persistence of several past large supply shocks highlights the possibility that oil prices could remain elevated longer than markets expect,” the bank said.
Energy economists note that the Strait of Hormuz normally carries close to one-fifth of global oil consumption, making any disruption there uniquely destabilising for energy markets. Even partial closures force exporters to rely on limited pipeline capacity, reducing the volume of crude reaching international buyers and tightening supply across Asia and Europe.
The shock is already feeding inflation concerns worldwide. Higher crude prices are expected to push up fuel, transport and manufacturing costs across major importing economies, complicating monetary policy decisions and potentially delaying interest-rate easing cycles in several regions.
Asian economies appear particularly exposed because of their heavy dependence on Gulf crude imports. Countries such as India, China, Japan and South Korea rely on the corridor for a large share of their energy needs, making sustained disruptions a major risk to growth and trade balances.
At the same time, traders are closely watching whether spare production capacity elsewhere can offset losses from the region. Analysts say any coordinated response from major producers could help stabilise markets, but available buffers remain limited compared with the scale of the current disruption.
The evolving conflict, analysts say, has introduced a new layer of uncertainty into global energy markets, with shipping security, infrastructure resilience and escalation risks shaping price expectations day by day. If export routes remain constrained for several more weeks, the current shock could evolve from a temporary supply interruption into a structural tightening cycle with lasting consequences for global inflation, trade flows and economic growth.
