The Hormuz crisis moves onshore as production halts

Once a producer’s storage is full, the tapsmust stop. For Gulf nations, a halt in oil production not only represents lost revenue, but also long-term technical risks. Shutting down a well can damage the reservoir, meaning that restarting production once the Strait reopens will not be simple.

If Hormuz stays shut, the squeeze will start spreading into feedstocks and refined products as more Gulf producers lose room to unsold barrels. QatarEnergy declared force majeure on its LNG shipments last week, and Saudi Arabia and the UAE could be next as stores pile up and the export route stays blocked, pushing the crisis past shipping disruption and into physical supply loss.

Things are already starting to hurt

The Fujairah Oil Industry Zone saw another fire caused by falling debris — after air defenses intercepted an Iranian drone and the emirate saw another fire early this morning from falling shrapnel. As of yesterday, Iran had launched 1.4k drones against the UAE — 1.3k of which were intercepted while 80 landed — as well as eight cruise missiles that were all intercepted.

Meanwhile, Kuwait Petroleum Corporation cut crude output and refining throughput and declared force majeure on Saturday after the Hormuz crisis blocked shipments for an eighth straight day. Kuwait was producing around 2.6 mn bpd in February, and it’s also a major naphtha exporter to Asia and jet fuel exporter to north-west Europe.

The pressure is also hitting fuel infrastructure onshore. A drone struck two fuel tanks at Kuwait International Airport on Sunday, igniting a fire that was later brought under control with no injuries reported.

Iraq also halted production at the Rumalia oil field due to limited storage capacity. The country had already suspended all crude oil shipments through the Kirkuk-Ceyhan pipeline to Turkey’s Mediterranean coast last week, removing approximately 200k bpd from global markets and threatening the already fragile economy of the Kurdistan region of Iraq. A prolonged shutdown at Rumaila and fields in Kurdistan could have a significant impact on Iraq’s production levels and its trade with global markets –– with the duel suspensions costing the country some USD 128 mn per day.

The Rumalia oilfield, Iraq’s largest producing point, spans some 1.6k sqm and accounts for one-third of the country’s output.

Ripples across the region

Aramco is temporarily rerouting some oil shipments via the Red Sea port of Yanbu, Al Ekhbariya reports. The oil giant is working to ensure the reliability of oil supplies amid the ongoing conflict, with plans to restore operations once conditions stabilize, the company reportedly said.

REMEMBER- The Kingdom reportedly rerouted Asian energy shipments to the Red Sea port last week. Rising costs tied to the Strait of Hormuz disruption — higher ins. premiums and security risks — have prompted a logistical pivot.

A light at the end of the strait?

Adnoc confirmed its operations are going ahead despite the current regional tensions. The company said it is leaning on export capacity that bypasses the strait, as well as its international storage facilities, without disclosing specifics. It seems like Adnoc is increasingly relying on its Habshan-Fujairah pipeline — responsible for roughly half of the UAE’s total oil production at a 1.5 mn/bpd capacity — which avoids Hormuz entirely.

Sending mixed signals: Adnoc also said it was “managing offshore production levels to address storage requirements,” suggesting it planned to cut back oil production, without providing further details.

The Hormuz oil supply disruptions will be offset by a general global oversupply, a FitchRatings report finds, noting that the Hormuz closure is likely to be “temporary” and cause “limited” shock to oil prices. Global inventories sat at 8.2 bn barrels at the end of 2025 –– sufficient enough to cover a pause in oil shipments through the Strait of Hormuz for over 400 days, Fitch data finds. High global inventories and significant spare capacity are set to subdue the geopolitical risk premium and oil price spikes.

Fitch remains steady on its 2026 forecast. The ratings agency does not expect its USD 63 / bbl Brent oil forecast for 2026 to experience a significant increase, noting that “a protracted closure would affect both exporting and importing countries and therefore is not our baseline assumption.” The agency is expecting supply to rise by 2.4 mm / bpd and demand by 0.8 mm / bpd.