Leading GCC energy producers continue lockdown: A wave of force majeure declarations and precautionary production cuts swept through the Gulf’s energy sector last week, hitting Qatar, Kuwait, Bahrain, and Iraq. The moves came as Hormuz sees a 90% collapse in shipping traffic and key energy production sites came under fire.

SOUND SMART- Force majeure is when an unexpected event — war, pandemic, natural disaster — prevents a party from fulfilling the terms of their legal agreement. In the energy sector, it’s often related to the operation, production, export, and transportation of goods. The declaration grants an energy producer exemption from its legal obligations to deliver the agreed upon shipments on time, without allowing buyers to claim compensation.

Pausing operations is a big move: “Once you cut production, it's not like a light switch; you can't really turn it back on again,” CSC Commodities Energy Analyst Sasha Foss told EnterpriseAM. “These reservoirs will take a lot of work to get them pumping back again to maximum production, so you risk long-term damage in terms of the production figures, which is what the market is scared of.” In the GCC, the “modus operandi is really being a stable, secure supplier, which they have been for decades.” This is kind of the scenario that they feared: “they really want to fulfill their term contracts.”

Qatar’s LNG caught headlines

Qatar’s LNG disruption is rippling through global energy supply chains. Major energy players, including Shell, TotalEnergies, and several Asian firms declared force majeure to their own customers following a production halt in Qatar. This is a significant blow to the global energy supply chain and transit logistics. While March deliveries are reportedly unaffected, the impact will be felt starting in April. Qatari Energy Minister Saad Al Kaabi warned it could take “weeks to months” for deliveries to return to normal.

Qatar was among the first to signal a full-scale halt. QatarEnergy suspended production at the world’s largest LNG export plant, Ras Laffan, and issued official force majeure notices to affected buyers — notably India’s Petronet — citing the effective closure of Hormuz and drone attacks on Ras Laffan.

Capacity crunch: Shell’s 6.8 mtpa and TotalEnergies’ 5.2 mtpa uptakes from Qatar are now stalled.

Crude oil halts could create market backlash

Where do we stand? Brent crude surged beyond the USD 100 / bbl mark this morning after Oman evacuated all vessels from its key oil export terminal and fresh attacks on two tankers in Iraqi waters.

The oil infrastructure of Kuwait, which is entirely dependent on the strait for its exports, is arguably the most exposed. The Kuwait Petroleum Corporation declared force majeure on its crude and refined product exports after the Hormuz crisis blocked shipments for an eighth straight day. Kuwait was producing around 2.6 mn bpd in February.

Bahrain soon followed suit. Bapco Energies declared force majeure after its refinery complex, the country’s only refining node, was struck, noting that domestic market needs will continue to be met under contingency plans. Bapco’s refinery processes about 267k bbl / d and is being expanded to roughly 380k bbl / d, with around 14 mn barrels of storage at the site.

Time is ticking as the 12-day storage wall countdown edges closer. “Any kind of continuation of the war and the conflict means that there's no outlet and storage facilities fill up, then you'll have to have production cuts in the region,” Foss said. Once tanks are full, the force majeure declarations will shift the GCC worries from shipping delays to total wellhead shutdowns, which could cause permanent reservoir damage.

Iraq is already halting production at major sites over security concerns. Major oil fields in the south, including Rumaila, West Qurna 2, and Maysan, slashed their production by over half, around a 1.5 mn bpd total loss last week. The Basra oil terminal also ceased export operations.

The outliers

Andoc is maintaining operations by using the Habshan-Fujairah pipeline, which bypasses the strait to reach the Gulf of Oman. So far, the firm is managing offshore production but has explicitly stated it’s avoiding blanket force majeure by taking a granular, product-by-product approach.

KSA has similarly avoided force majeure — tapping its East-West pipeline to bypass the strait via the Red Sea. Egypt has also offered its Sumed pipeline –– Ain Sokhna to Sidi Kerir — to facilitate the transfer of Saudi crude oil from Yanbu to the Mediterranean, creating a land-to-pipe bridge.

But the situation is constantly evolving. Some shipowners are now increasingly avoiding Fujairah — the UAE’s primary export hub outside the Arabian Gulf — due to reported missile threats. The Fujairah Oil Industry Zone saw several fires caused by falling debris last week. The shipowners now avoiding Fujairah have cancelled their shipments, in a move which should allow producers to resell and upmark the cargos.

Aramco also halted operations at some units of the Ras Tanura refinery following a drone strike in the area last week. The 550k bbl / d facility is one of the Kingdom’s largest.

What’s next?

Will the market stabilize? “We actually entered this crisis with everyone thinking we were oversupplied,” Foss explained, adding that the mixed messaging from the US is causing the market to fluctuate. “Some comparisons have been made to 2022 when Russia invaded Ukraine in February. We were coming out of Covid, so oil demand was pretty inelastic, you need these quite dramatic changes in price to affect consumption.”

“We saw the price go up to USD 130 per barrel then and it stayed above 100 for 110 days consecutively,” Foss notes. Clarifying that, “the Middle East is twice as significant as Russia as an oil producer,” but “materially we were oversupplied going into this, with some 600 mn barrels more in stock currently than there were when Russia-Ukraine started.”

“The duration of this conflict really is the critical factor,” Foss explained, adding that “given the strait is only 21 miles at its narrowest point, it only takes a kind of low or relatively low-cost missile to strike one vessel and then the premiums go up.” We are seeing the practical decoupling of the global energy trade from its most vital artery. The strait previously handled 20 mn barrels per day, roughly a quarter of all seaborne oil.

Production has gone down, and “it won't be able to come back as quickly,” he said. However, the “oil market has become relatively nimble in the last few years because we've had so many energy shocks.”

While Fitch Ratings expects the strait’s closure to be “temporary” and maintains a 2026 Brent average forecast of USD 63 / bbl, the immediate reality for operators is a scramble for alternative logistics and the suspension of delivery contracts that could take months to untangle.

Could buyers move to alternative sources? “There just isn't anyone really big enough to replace the Middle East,” Foss said, “they'll do what they can but I don't think they'll be able to replace that source.” The US has eased the sanctions on purchasing Russian oil for India, while Venezuela is expected to ramp up production, and US producers of shale oil are already in full throttle.

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