Oil Crash: The Middle East in Crisis, but Russia Becomes the Winner?

Oil Crash in the Middle East: Production has dropped by a third, the Strait of Hormuz is paralyzed, and oil prices have fluctuated sharply between $120 and $90 per barrel. Saudi Arabia, Iraq, the UAE, and Kuwait have drastically cut production to prevent storage from overflowing, putting the world at risk of a fuel shortage. But in this chaos, Russia unexpectedly becomes the leader: the United States has lifted oil sanctions—Russia not only survived, but also returned to the game as an important player.

Oil Crash in the Middle East: Production Has Dropped by a Third

Bloomberg reports that the Middle East crisis has paralyzed the oil market: production has dropped by a third, and oil prices have fluctuated violently. The largest oil-producing countries in the region—Saudi Arabia, Iraq, the UAE, and Kuwait—have significantly reduced daily production to prevent inventory saturation. According to Bloomberg, the total reduction in production reached 6.7 million barrels per day, which is a third of pre-war production levels.

Iraq has been hit the hardest: oil production has dropped nearly 60%, about 2.9 million barrels per day. Saudi Arabia cut production by 2-2.5 million barrels per day, the UAE cut 0.5-0.8 million barrels per day, and Kuwait cut about 0.5 million barrels per day.

This measure was a forced response after the Strait of Hormuz became chaotic, with shipping basically stalled. About one-fifth of global maritime oil exports pass through this key route, but now ships are avoiding the war zone by taking alternative routes. Global oil supply has decreased by 6%, and fuel reserves, already at a five-year low, are being consumed at an alarming rate.

the Largest Crisis in the History of the Oil and Gas Industry

Amin Nasser, CEO of Saudi Aramco, said in a quarterly earnings call that the current crisis is the most severe in the history of the region's oil and gas industry.

He said the chaos has triggered a chain reaction: it has impacted shipping and insurance, then caused a domino effect in industries such as aviation, agriculture, and automobile manufacturing. He warned that the longer the strait is blocked, the more catastrophic the consequences for the global oil market and the world economy will be. Nasser believes that restoring shipping is crucial because excess capacity is concentrated in the Middle East.

The conflict has led to fuel supply disruptions and price surges in Europe and Asia, with some companies declaring force majeure. However, after US President Trump claimed the war would "end" and control over the Strait of Hormuz, the market saw a turning point: oil prices fell below $90 from near $120, and are now stable at $91.35.

But Russia Became the Winner? "Russians Are Back"

US-Israel joint strikes on Iran inadvertently opened the door for Russia to re-enter the global oil market. The UK media UnHerd wrote that, amid the interruption of Middle Eastern supplies, sanctioned Russian oil has become a scarce resource, with buyers willing to pay a premium for it.

The article pointed out that the surge in oil prices forced the US to take a step that seemed unthinkable before: the US relaxed or even actually lifted sanctions on Russian oil in some areas, citing the need to stabilize global oil prices. In normal times, this would have been a major news story, but in the context of the Iran war, market attention was focused on the sharp rise in oil prices.

According to UnHerd, Putin has resumed oil supplies to India, no longer selling at a discount, but at a premium—media boldly state: "Russians are back."

With oil tanker transport disrupted due to the Middle East conflict, and Brent crude approaching $119 per barrel for the first time since June 2022, Russian oil has become one of the most sought-after sources.

This military operation, originally aimed at suppressing Iran and its allies, has unexpectedly changed the balance of power: Russia, which had been trying to be pushed out of the global energy map, has returned to the center stage and begun to set its own terms for buyers.

Original: toutiao.com/article/7615809098143007273/

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