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Kuwait Cuts Oil Production Amid Rising Tensions in Persian Gulf
Kuwait announced Saturday a reduction in its oil production and refining output, citing the inability of tankers to safely transit the Persian Gulf due to ongoing threats from Iran. While the exact volume of the cut was not disclosed, the Arab monarchy described it as a precautionary measure, subject to review as the situation unfolds.
Kuwait, the fifth-largest oil producer within OPEC, typically produces approximately 2.6 million barrels per day. The state-owned Kuwait Petroleum Corporation affirmed its readiness to resume full production levels once conditions permit.
This development follows a tumultuous week in global energy markets, with oil prices surging by approximately 35%. The escalating conflict in Iran has triggered significant disruptions to global energy supplies, with ship owners fearing attacks on their vessels, leading to a halt in tanker transits through the critical Strait of Hormuz.
The Strait of Hormuz, a narrow waterway, is the sole entry and exit point for the Persian Gulf, through which an estimated 20% of global oil consumption is exported. As tankers remain immobilized, crude oil barrels are accumulating in the Middle East, leaving Gulf Arab producers with limited storage capacity and forcing them to scale back production. Iraq has already reportedly cut 1.5 million barrels per day due to dwindling storage space.
Natasha Kaneva, head of global commodities research at JPMorgan, noted the market’s shift from pricing geopolitical risk to grappling with tangible operational disruptions. JPMorgan estimates that if the Strait of Hormuz remains closed, production cuts could exceed 4 million barrels per day by the end of next week. Kaneva previously warned that a prolonged U.S.-Iran conflict (beyond three weeks) would exhaust storage capacity and shut down oil production in Gulf Arab countries, potentially pushing global benchmark Brent oil prices above $100 per barrel.
Friday saw crude oil futures log their largest weekly gain in trading history. Brent futures climbed 8.52% to settle at $92.69 per barrel, while West Texas Intermediate futures spiked 12.21% to close at $90.90 per barrel.
U.S. crude experienced its biggest weekly gain since the futures contract’s inception in 1983, rocketing 35.63%. Brent also saw its largest weekly increase since April 2020, soaring 28%.
Beyond oil, the conflict has also impacted global natural gas supplies. Qatar, a significant exporter of liquefied natural gas (LNG), suspended its production on Monday following attacks by Iran. Qatar accounts for approximately 20% of the world’s LNG exports, a crucial resource for electricity generation and home heating globally.