Kuwait said Saturday that it has cut oil production and refining output because tankers cannot transit the Persian Gulf due to threats from Iran.
The Arab monarchy did not say how many barrels per day it has cut, but described the output reduction as a precautionary measure that will be “reviewed as the situation develops.”
Kuwait is the fifth-largest oil producer in OPEC. It produced about 2.6 million barrels per day in January.
The state-owned Kuwait Petroleum Corporation said it “remains fully prepared to restore production levels once conditions allow.”
Oil prices surged about 35% this week as the Iran war triggered a major disruption of global energy supplies. Tankers have stopped transiting the critical Strait of Hormuz because ship owners fear their vessels will be attacked by Iran.
Gulf Arab oil producers like Kuwait export their barrels through the Strait. The narrow waterway is the only way to enter or exit the Persian Gulf. About 20% of global oil consumption is exported through the Strait.
Oil barrels are piling up in the Middle East with nowhere to go because the tankers are not moving. Gulf Arab countries are forced to lower production when they run out of space to store barrels. Iraq has already cut 1.5 million barrels per day as it runs out of storage space, Iraqi officials told Reuters on Tuesday.
“The market is shifting from pricing pure geopolitical risk to grappling with tangible operational disruption,” Natasha Kaneva, head of global commodities research at JPMorgan, told clients in a Friday note.
The Gulf Arab countries will exhaust storage capacity and shut down oil production if the U.S.-Iran war lasts more than three weeks, Kaneva said in a note last Sunday. This would spike global benchmark Brent oil prices above $100 per barrel, she said.
JPMorgan estimates that production cuts could exceed 4 million barrels per day by the end of next week if the Strait of Hormuz remains closed.
On Friday, crude oil logged its biggest weekly gain in futures trading history. Brent futures surged 8.52%, or $7.28, to settle at $92.69 per barrel. West Texas Intermediate futures spiked 12.21%, or $9.89, to close at $90.90 per barrel.
U.S. crude rocketed 35.63%, its biggest weekly gain in the history of the futures contract dating back to 1983. Brent soared 28%, the largest weekly increase since April 2020.
The Iran war has also disrupted the world’s natural gas supplies. Qatar shut down liquefied natural gas production on Monday due to attacks by Iran. About 20% of the world’s LNG exports come from Qatar.
LNG is a form of natural gas that is chilled into a liquid so it can be loaded onto tankers and exported around the world. Natural gas is used for electricity production and home heating.