By Avi Salzman
The oil market entered a new stage of crisis on Friday -- supply is starting to disappear, threatening a shortage that could quickly send prices above $100 per barrel.
The Iran war has sent oil prices up 25% since it began, and the international benchmark prices jumped above $90 on Friday for the first time since 2024. Most of those gains came because of anxiety that global demand would start to outpace supply, even though oil producers were pumping at the same rates they were before the war. That's starting to change.
Iraq has said it is cutting back on more than half of its production, and Kuwait has been forced to do the same after its oil storage tanks hit their limits, according to a report Friday in The Wall Street Journal. Those countries can't export oil, because the Strait of Hormuz from the Persian Gulf has been effectively blocked because of the war. About 20% of the world's oil is transported through the strait.
Until now, producers have been able to keep the taps flowing, and store any excess oil in tanks on land or ships at sea.
Not anymore. About 1.5 million barrels per day of oil is offline in Iraq, according to Natasha Kaneva, head of global commodities strategy at JP Morgan.
Kaneva says that Kuwait has reduced its refinery output by 600,000 barrels per day, taking away barrels that would normally be exported. To put that in context, total global oil supplies are around 107 million barrels per day. But small changes in production have a big impact. Also, only about 78 million barrels are crude oil, the source of the fuels that keeps the world running (much of the rest is natural gas liquids, which is used largely in chemicals production).
The production shutdowns in the Middle East upend a key assumption that oil traders had made before the war. Most analysts figured Iran wouldn't attack regional oil infrastructure or block the strait. If oil exports are halted, that would hurt its own revenue, and its long-term relationships with regional powers like Saudi Arabia.
Clearly, all bets are off now. Iran is lashing out everywhere in the region, and oil infrastructure is on the target list. "The nightmare energy scenario cometh," wrote Capital Economics economist David Oxley on Friday, who thinks a prolonged strait disruption will result in $100 oil. That would send gasoline prices even higher too, after they've already risen by 33 cents per gallon in the past week.
From here, things could get much more drastic. Saudi Arabia has more storage capacity than Kuwait, but its available capacity could start to run out too.
"We are counting down to the next wave of shut--ins, driven by export bottlenecks and refinery constraints," Kaneva wrote. "On current trajectories, disruptions of roughly 1.5 million barrels per day could rise toward 3 million by week--end; by the end of next week, cuts could exceed 4 million and potentially approach 6 million if refined--product storage reaches capacity."
In the case that supplies from those larger Gulf producers get shut in, prices could jump another $30 per barrel, Kaneva estimates. There's precedent for them to go even higher. In the early days of Russia's attack against Ukraine, prices jumped to nearly $127. Arguably, this war is more dangerous to the oil market than the Russian one. In 2022, Russian production kept flowing.
This time, the taps are starting to be shut off.
Write to Avi Salzman at avi.salzman@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
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March 06, 2026 11:22 ET (16:22 GMT)
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