A recent research report from Rystad Energy, one of the world's largest independent energy research and intelligence agencies, reveals that overall oil and gas production in the Middle East, including crude oil and natural gas supplies, has experienced a sharp decline of approximately 12 million barrels of oil equivalent per day. Under the worst-case scenario, production could plummet by a staggering 70% compared to pre-conflict levels before the U.S./Israel and Iran confrontation. Since the Iranian military effectively closed the Strait of Hormuz, the region has lost a record-breaking volume exceeding 12 million barrels of oil equivalent per day, equivalent to about 7% of global liquid fuel demand. The actual offline crude oil supply is approximately 7 million barrels per day. Rystad Energy stated in a Monday research report that, in the worst-case scenario, the region's combined oil and gas output could fall to as low as just 6 million barrels per day, implying a potential 70% drop from pre-war levels. Rystad Energy is long renowned for its deep energy market insights, covering oil, natural gas, renewables, power, hydrogen, battery storage, and more, with clients including energy firms, financial institutions, government agencies, and investors.

The Strait of Hormuz is critical to everything. With storage tanks nearing full capacity and alternative oil transportation infrastructure pushed to its limits, and as the latest Middle East geopolitical conflict shows no significant signs of near-term resolution, further production cuts by major Middle Eastern oil producers cannot be entirely ruled out, said Aditya Saraswat, a senior analyst at Rystad. He added that returning to pre-conflict production levels could take months or even up to a year, depending on infrastructure and geopolitical developments. From a pre-war Persian Gulf production base of 21 million barrels per day, excluding Iran's output, only 14 million barrels per day are currently operational. However, Rystad indicated this supply is extremely vulnerable. For instance, 6.5 million barrels per day rely on pipelines bypassing the Gulf—the UAE's ADCOP pipeline to Fujairah and Saudi Arabia's East-West pipeline to Yanbu—but this infrastructure has become a potential target amidst geopolitical tensions and faces severe limitations regarding tanker availability and capacity.

Regarding the extreme 70% scenario, Rystad clarified this is a worst-case projection: Middle East output could potentially drop from 21 million barrels per day pre-war to just 6 million barrels per day, representing a potential reduction of about 15 million barrels per day. The more commonly cited immediate impact in markets is the global supply gap of approximately 5 to 8 million barrels per day, as per the latest IEA report, or a Middle East crude production reduction of 7 to 10 million barrels per day. Therefore, Rystad's 70% expectation is an extreme downside scenario, not an established fact.

The March 2026 closure of the Strait of Hormuz has already caused a disruption of about 8 million barrels per day, roughly 8% of global supply, which is considered the largest global oil supply disruption on record. This exceeds the over 4 million barrels per day gap during the 1990 Gulf crisis and is higher than the approximately 1.5 million barrels per day disruption caused by Hurricanes Katrina and Rita in 2005. In other words, even without considering Rystad's worst-case scenario, the current supply loss alone represents a historically significant energy shock. This means an unprecedented crude supply crisis is not merely approaching but has already begun unfolding, though it has not yet reached its most extreme version.

What ultimately determines whether the energy market supply system deteriorates further may not be when Gulf producers can restore capacity, but rather how long the current geopolitical conflict persists, how long the bypass pipelines can hold, and whether widespread global demand destruction erupts. There are no viable short-term alternatives for Arab Heavy and Arab Medium crude grades. If the geopolitical conflict is not effectively resolved in the coming weeks, it could trigger a historic and unprecedented supply crisis, analyst Saraswat noted.

Legendary investor and Bridgewater founder Ray Dalio warned in a personal column that the current U.S.-Iran struggle over the Strait of Hormuz represents an "ultimate battle"—one that will not only change oil prices but also change the world. Dalio suggested that while there is ongoing talk of an agreement to end the war, both the U.S. and Iran likely understand that no agreement can resolve it, as agreements are worthless. Whatever happens next—whether the Strait remains under Iranian control or the U.S. seizes control—will likely be the worst phase of the conflict. This final battle will decisively determine the outcome and is likely to be massive in scale.

Markets are gradually beginning to price in a potential Strait of Hormuz reopening scenario, with oil prices retreating on Monday. Oil futures ultimately turned lower after brief gains, primarily due to indications that Iran is beginning to allow a small number of tankers through the Strait of Hormuz. Additionally, U.S. Treasury Secretary Besant stated that the U.S. is currently allowing Iran to continue transporting its crude oil through the strait. Iranian vessels are moving out, and we are permitting this to happen to supply the rest of the world, Besant said in an interview. Analysts at Ritterbusch noted in a report that oil complexes are experiencing selling pressure due to reports of some tankers transiting the Strait and calls for international naval assistance to escort vessels. IEA member countries might also release more oil from strategic reserves if necessary and as conditions warrant. These countries previously agreed to a record release of 400 million barrels last week, and IEA Executive Director Fatih Birol did not rule out further releases.

Robert Yawger from Mizuho Securities stated in a report that India's success in getting two LNG carriers through the Strait of Hormuz raises the possibility of individual countries striking separate oil transport deals with Iran in the coming days. Yawger suggested that if signs continue pointing towards Iran negotiating with various nations to reopen the Strait, coupled with U.S. efforts to form a coalition protecting vessel navigation—developments favorable for lower oil prices—then the international benchmark Brent crude futures price could continue to decline.

On Monday, oil prices reversed sharply after earlier gains. The NYMEX near-month crude contract for April delivery closed down 5.3% at $93.50 per barrel. The near-month Brent contract for May delivery settled 2.8% lower at $100.21 per barrel. U.S. natural gas futures followed oil lower, with the NYMEX near-month gas contract for April delivery down 3.4% at $3.023 per MMBtu.

Market observers widely worry that the U.S. economy could enter a period of stagflation due to the rapid oil price surge. Oil prices have risen 50% over the past month, inflation remains high, but the U.S. lost 92,000 jobs in February. Data released Friday also showed Q4 GDP cooled more than expected. Consequently, against this "stagflation" backdrop, comments this week from the Federal Reserve and other global central banks regarding monetary policy and economic outlooks are seen as crucial. The Fed, ECB, Bank of England, and Bank of Japan are set to announce interest rate decisions closely, with markets focused on potential convergence in the Fed's dot plot and the悬念 of a BOJ rate hike. Central banks in Australia, Indonesia, and Brazil are also scheduled to communicate, presenting a significant test for foreign exchange and bond markets.