Kuwait said Saturday it has cut oil production because oil 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 production reduction as a precautionary measure that will be “reviewed as the situation evolves.”
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 permit.”
Oil prices rose about 35% this week as the Iran war caused a major disruption to global energy supplies. Oil tankers have stopped transiting the critical Strait of Hormuz because shipowners fear their ships will be attacked by Iran.
Arab Gulf oil producers, such as Kuwait, export their barrels through the Strait. The narrow waterway is the only way into or out of the Persian Gulf. About 20% of global oil consumption is exported through the Strait.
Barrels of oil are piling up in the Middle East with nowhere to go because tankers aren’t moving. Arab Gulf countries are forced to reduce production when they run out of space to store barrels. Iraq has already cut 1.5 million barrels a day because it is running out of storage space, Iraqi officials told Reuters on Tuesday.
“The market is moving from pricing purely geopolitical risk to dealing with tangible operational disruption,” Natasha Kaneva, head of global commodities research at JPMorgan, told clients in a note on Friday.
Arab Gulf countries will deplete their storage capacity and shut down oil production if the war between the United States and Iran lasts more than three weeks, Kaneva said in a note last Sunday. This would lift global benchmark Brent oil prices above $100 a barrel, he 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 posted its biggest weekly gain in futures trading history. Brent futures rose 8.52%, or $7.28, to settle at $92.69 a barrel. West Texas Intermediate futures rose 12.21%, or $9.89, to close at $90.90 a barrel.
U.S. crude soared 35.63%, its biggest weekly gain in futures contract history dating back to 1983. Brent soared 28%, the biggest weekly gain since April 2020.
The Iran war has also disrupted the world’s supply of natural gas. Qatar shut down liquefied natural gas production on Monday due to attacks by Iran. Around 20% of global LNG exports come from Qatar.
LNG is a form of natural gas that is cooled into a liquid so it can be loaded into tankers and exported around the world. Natural gas is used for electricity production and home heating.
