As Kuwait downplays the risk of a Hormuz shutdown, oil supplies tighten

Kuwait’s oil production has declined following the closure of the Strait of Hormuz

Kuwait suspended oil production after the Strait of Hormuz was closed, cutting off its main export corridor. The move reflects an immediate logistical risk for crude oil shipments.

According to the Kuwait Petroleum Corporation, this action is precautionary and temporary, and domestic supply will be ensured and production will be restored once conditions allow. The company said adjustments are under constant review as conditions evolve.

Why it matters: Global oil supply disruptions and logistics

The Hormuz oil is an important artery of global energy trade, accounting for about 20% of the world’s crude exports, as reported by Arab Times Online from Kuwait oil analysts. A disruption at this point would threaten oil refining reserves, particularly across Asia.

As ships avoid conflict zones and insurers limit coverage, travel costs and schedules increase, creating logistical risks. Al Jazeera reported that tanker transit has been restricted amid insurance withdrawals, adding to supply uncertainty.

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According to Blockonomi, storage tanks inside Kuwait are nearing capacity, which is causing production to drop because barrels cannot be exported. The limitation is mechanical, not harmful.

Cutbacks in insurance and shipowner notices make it harder to locate nearby cargoes, limiting immediate exports. Those mechanics, not the integrity of the field, dictate the scale and degree of production decline.

“The strait has become impenetrable,” said Rachel Ziemba, a senior fellow at the Center for a New American Security. His assessment reflects the insurer’s withdrawal and avoidance of the tanker, which has led to an adjustment to the reserve provision.

Analyst scenarios and possible options for Kuwait

8/15/18 Breakdown for JP Morgan

JP Morgan estimates that global crude supply losses could reach as much as 3.3 million barrels per day after eight days of continued shutdowns. The bank models around 3.8 million barrels on the 15th and 4.7 million barrels on the 18th if there is no relief. Its analysts also note that Kuwait may be forced to curb production for two weeks if exports remain blocked.

Rystad: 8-10 mbpd impractical regardless of alternatives

Rystad Energy estimates that even with alternative routes, 8-10 million barrels per day will remain effectively unavailable if the disruption continues. This means limited short-term relief from bypass pipes, swaps or re-routing.

Questions about closing the Strait of Hormuz

Is Kuwait production temporary and how will KPC ensure domestic supply?

Yes. The company describes the suspension as a precautionary and temporary measure, and internal requirements are fully covered. The result will be restored as conditions allow and reviewed as risks develop.

If the strait remains closed, how much oil reserves will be lost worldwide and on what schedule?

Day 8: ~3.3 mbpd; day 15: ~3.8; day 18: ~ 4.7, a bank model. Even with alternatives, 8-10 mbpd may remain unattainable.