By Georgi Kantchev and Summer Said

Kuwait has begun cutting oil production because it is running out of storage space, as the fallout from the Iran conflict spreads across the Middle East and casts a pall over the global economy.

The Gulf country is discussing bigger production cuts in the coming days, people familiar with the matter said. Major storage facilities in Saudi Arabia and the U.A.E. also are filling up fast, with both countries expected to hit their limits in under three weeks, according to data provider Kpler said.

The storage crisis -- which began with Iraq slashing output by more than half earlier this week -- is compounding a cascading series of supply disruptions triggered by the conflict. The key maritime chokepoint of the Strait of Hormuz is paralyzed, and regional energy facilities have sustained direct hits. Beyond oil, Qatar, one of the world's top three producers of liquefied natural gas, cut its output this week.

Investors are pricing in a bigger disruption. After crude gained less than expected in the early days of the conflict, Brent, the global price yardstick, jumped over $91 a barrel on Friday, from $72 last week.

The sudden strangulation of Middle Eastern oil flows threatens to send shock waves through the global economy. A sustained rise in oil prices would be a significant new drag on economic growth, triggering demand destruction and threatening to push countries into recession.

For consumers, it translates to an imminent spike at the gas pump, while businesses face rising operational costs. The energy shock also shifts the landscape for central banks. A resurgent, energy-driven wave of inflation threatens to tie the hands of the Federal Reserve, potentially forcing policymakers to halt expected rate cuts or even pivot back to tightening just to keep prices from spiraling out of control.

Energy Secretary Chris Wright tried to calm price fears Thursday, predicting the war could end within weeks. But retail gasoline and diesel are already surging across the U.S., squeezing an already sluggish American economy. Gasoline prices jumped to $3.32, up from just under $3 a week ago, according to AAA.

The choking of the Strait of Hormuz, through which around a fifth of global oil supply flows every day, leaves the region's biggest oil producers in a race against time as storage fills up. Once storage fills up -- a condition known in industry parlance as "tank tops" -- producers face the technically and politically costly reality of halting production.

"Storage is limited in the Middle East, and the only fix to avoid tanks running over is to curb production," Giovanni Staunovo, commodity strategist at UBS, said. "The longer the strait stays closed, the more barrels of crude and refined products will be missing, leading to higher prices."

Kuwait, a founding member of the OPEC cartel, is discussing limiting its production and refining capacity further, to just what it needs to cover domestic consumption, the people familiar with the matter said. A decision on those broader cutbacks is expected within days, they said.

Data provider Kpler said it has seen indications that Kuwait has started to cut production, adding that the country would have to cut more output in the coming days, as storage would otherwise fill up in around 12 days.

Shutting in an oil well risks long-term damage to reservoir pressure and incurs high restart costs, usually making it a measure of last resort. Restarting production can take days or even weeks depending on the reservoir.

This mechanical reality means that even if the geopolitical conflict were resolved within days, the operational hangover from these shutdowns guarantees a prolonged period of suppressed supply and elevated prices.

"It will not be all back the same day exports are possible again," Staunovo said.

Gulf states, including Saudi Arabia, the U.A.E., Kuwait and Qatar, rely heavily on massive tank farms at export terminals dotted across the region.

These facilities act as vital buffers, where crude and refined products flow from fields into tanks. Complex manifold systems and pump networks blend the oil to strict contract specifications before loading it onto ships for transport to customers around the world.

When export routes like the Strait of Hormuz are constricted, producers can temporarily keep pumping by pushing barrels into these tanks.

Iraqi oil officials said earlier this week that oil output at the country's largest oil field, Rumaila, was cut by 700,000 barrels a day, while the West Qurna 2 field saw its output fall by around 450,000 barrels a day, the officials said. Iraq also cut production at the Maysan oil field and it has suspended production from the northern Kirkuk region as a precaution.

Saudi Arabia has much larger storage capacity and can bypass the Strait of Hormuz via pipeline -- but only up to a point, since it also has much higher production and exports, Antoine Halff, co-founder of data firm Kayrros, wrote in a note this week.

The kingdom's Ras Tanura, which houses the world's largest offshore oil-loading facility, has been targeted by drones more than once as Iran strikes neighboring countries.

As a result, Saudi Arabia has been rerouting more of its crude exports to the Red Sea port of Yanbu. The Saudi Red Sea system can only partially offset disruption in the Gulf, analysts say.

Write to Georgi Kantchev at georgi.kantchev@wsj.com and Summer Said at summer.said@wsj.com

(END) Dow Jones Newswires

March 06, 2026 12:46 ET (17:46 GMT)

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