Middle East oil and gas production or avalanche by 70%! The Strait of Hormuz does not reopen, and the unprecedented global supply crisis is difficult to resolve.

One of the world's largest independent energy research and intelligence institutions, Rystad Energy, recently released a research report showing that overall oil and gas production in the Middle East, including crude oil and natural gas resources, dropped sharply by about 12 million barrels of oil equivalent per day, and in a worst-case scenario, production levels could decline by a staggering 70% compared to before the conflict between the United States/Israel and Iran. Since Iran effectively closed the Strait of Hormuz, the region has experienced record losses exceeding 12 million barrels of oil equivalent per day, equivalent to about 7% of global liquid crude oil fuel demand. The actual offline crude oil production supply is approximately 7 million barrels per day. Rystad Energy stated in a research report on Monday that under the worst-case scenario, the region's overall oil and gas production could drop to as low as just 6 million barrels per day, meaning a potential decrease of 70% compared to pre-conflict levels. Rystad Energy is well-known for its deep insights into the energy market, covering multiple sectors such as oil, gas, renewable energy, electricity, hydrogen, battery storage, with clients mainly including energy companies, financial institutions, government agencies, and investors. The Strait of Hormuz is critical! "With oil tanks almost full and petroleum transport infrastructure nearing its limits, and with no significant signs of short-term resolution of the new round of Middle East geopolitical conflicts, further reductions in oil production by major oil-producing countries in the Middle East cannot be completely ruled out," said Aditya Saraswat, Senior Analyst at Rystad. He added that a return to pre-conflict production levels could take several months to a year, depending on infrastructure and geopolitical conflict conditions. Out of the 21 million barrels per day of oil production base in the Persian Gulf region before the conflict, only 14 million barrels per day are currently operational after excluding Iran's production. However, Rystad indicated that the supply is extremely fragile; for example, 6.5 million barrels per day rely on pipelines bypassing the Gulf region - the ADCOP pipeline from the UAE to Fujairah and the east-west pipeline from Saudi Arabia to Yanbu - but these infrastructure have become potential targets of attack under the geopolitical conflict situation and are also subject to strict restrictions on the availability of tankers and production capacity. Regarding the 70% extreme scenario, Rystad stated that this is a scenario simulation under the worst circumstances: that oil production in the Middle East could drop from 21 million barrels per day before the conflict to just 6 million barrels per day, corresponding to a potential reduction of approximately 15 million barrels per day. The more commonly cited impacts already in the market are the global supply gap of about 5 to 8 million barrels per day in IEA's latest report, or Middle East oil production has decreased by 7 to 10 million barrels per day. Therefore, Rystad's 70% expectation is an extreme downside scenario and not a established fact. The closure of the Strait of Hormuz in March 2026 has caused disruptions of about 8 million barrels per day, accounting for about 8% of global supply, making it the largest global oil supply interruption in history, surpassing the 4 million barrels per day gap during the 1990 Gulf Crisis and higher than the interruptions of about 1.5 million barrels per day caused by Hurricanes Katrina and Rita in 2005. In other words, even without considering the worst-case scenario presented by Rystad, just based on the supply losses already occurred, this is already the highest level energy shock in history. This also means that an unprecedented crude oil supply crisis is not "approaching," but is already unfolding, although it has not yet fully evolved into its most extreme version. What will ultimately determine whether the energy market supply system deteriorates further may not be when oil-producing countries in the Gulf can restore production capabilities, but how long the current geopolitical conflict will continue, how long the bypass pipelines can hold out, and whether global demand disruption will fully erupt. "In the short term, there are no feasible alternatives for Arab heavy and medium crude oil. If the geopolitical conflict is not resolved effectively in the coming weeks, it will trigger a historic, unprecedented supply crisis," wrote analyst Saraswat. Legendary investor and founder of Bridgewater Associates, Ray Dalio, warned in a personal column that the current competition between the United States and Iran in the Strait of Hormuz will be an "ultimate battle" that will not only change oil prices, but also change the world. Dalio said that although there have been talks about ending this war through an agreement, both the US and Iran may know that no agreement can resolve this war because agreements are worthless. "Whatever happens next - whether the Strait of Hormuz remains in Iran's hands or the US seizes control - could be the worst stage of the conflict. This final battle will determine the outcome, and this battle could be of great magnitude." The market is beginning to price in scenarios of the reopening of the Strait of Hormuz, with oil prices falling on Monday. On Monday, oil futures initially rose briefly before ultimately falling, mainly because Iran seems to be allowing some tankers to pass through the Strait of Hormuz, and US Treasury Secretary Mnuchin stated that the US is currently allowing Iran to continue transporting its own oil through the strait. "Iranian ships are leaving and we allow this to happen to supply other parts of the world," Mnuchin said in an interview. Analysts at Ritterbusch stated in a report: "The entire oil complex is facing selling... the reason is reports of some tankers passing through the Strait of Hormuz, as well as Trump's call for allied naval ships to escort tankers through the strait." IEA member countries may also "release more oil from strategic reserves to the market if necessary and as needed." Previously, these countries had agreed to release a record 400 million barrels of oil last week. IEA Executive Director Fatih Birol said that the possibility of further releasing strategic petroleum reserves cannot be ruled out in the future. Robert Yawger from Mizuho Securities stated in a report that "India has successfully allowed two liquefied natural gas tankers to pass through the Strait of Hormuz, increasing the likelihood of individual countries reaching agreements with Iran on future oil transportation in the next few days." Yawger said that if there are signs of negotiations between Iran and countries to reopen the Strait of Hormuz and the US is trying to organize an alliance to protect ships sailing in that area, the international oil price benchmark, Brent crude oil futures prices, may continue to decline. On Monday, oil prices experienced a sharp rise followed by a quick turnaround to a decline. The near-month crude oil futures for April delivery on the New York Mercantile Exchange closed down by 5.3% at $93.50 per barrel; The near-month Brent crude oil futures for May delivery closed down by 2.8% at $100.21 per barrel. US natural gas futures prices followed the trend of crude oil, with the near-month natural gas contracts for April delivery on the NYMEX closing down by 3.4% at $3.023 per million British thermal units. Market observers are generally concerned that the US economy may enter a period of stagflation due to a short-term surge in oil prices. Oil prices have risen by 50% in the past month, inflation remains high, but the US lost 92,000 jobs in February, and data released on Friday showed that GDP in the fourth quarter cooled more than expected. Therefore, under the background of "stagflation," the comments this week from central banks such as the Federal Reserve, ECB, Bank of England, and Bank of Japan on monetary policy and future economic trends are crucial. The Federal Reserve, ECB, BOE, and BOJ will announce interest rate decisions, with the market closely watching the convergence of the Fed's rate cut path and the suspense of the Bank of Japan's rate hike, while the central banks of Australia, Indonesia, and Brazil will also speak successively, with the forex and bond markets facing a major test.