Kuwait announces force majeure! The Hormuz crisis and the storm of reduced oil production in the Middle East are sweeping in, making oil prices easy to rise and hard to fall.

Due to the continued blockade of the Strait of Hormuz, customers who are unable to sail their ships into the Persian Gulf are unable to fulfill their obligations - Kuwait Petroleum Corporation is unable to fulfill supply obligations to customers who are unable to sail their ships into the Persian Gulf, and is forced to significantly reduce production during the blockade of the Strait of Hormuz. The important global oil exporting country of Kuwait has declared a major "force majeure" event on its crude oil and petroleum product transportation systems. According to a media report citing an internal document, the state-controlled Kuwait Petroleum Corporation notified customers last Friday that it is invoking contract terms that allow suppliers to not deliver goods. However, a source stated that this does not mean that supply will be completely cut off. Kuwait Petroleum Corporation did not immediately respond to requests for comments. The recent US and Israel airstrikes have nearly paralyzed shipping in the Strait of Hormuz as part of the ongoing Iran war, leading to rapid filling of oil storage tanks in the region and causing Middle Eastern oil-producing countries to reduce production and continued disruption of the global oil supply market. With this key shipping channel effectively closed, it is a nightmare scenario for Persian Gulf countries that heavily rely on energy export revenues to support public spending. Due to the closure of the Strait of Hormuz and Iran's attacks, major oil-producing countries in the region have had to significantly cut back on oil, natural gas, and refined oil production. Earlier this month, US government forecasts showed that over 9 million barrels per day of oil production will be forced to shut down in April. Kuwait's oil infrastructure has suffered multiple hits and its production has now dropped to extremely low levels not seen since the early 1990s following the Iraqi invasion. The same source stated that once hostilities ease, full production recovery will take time, which may mean that the large oil exports in the Middle East region will continue to be severely affected; due to the nature of the discussions being confidential, the source requested anonymity. Kuwaiti officials, in interviews, stated that they expect to be able to quickly restore production to pre-war levels in the months following the end of this round of geopolitical conflict. The overall oil production in the Middle East has seen significant cuts due to the Iran war, and this time the logic behind the production cuts and soaring oil prices is not just "blocked shipping in the Strait of Hormuz", but a triple combination of "production cuts + blocked exports + damaged infrastructure from missile attacks." Apart from Kuwait, Iraq, Qatar, the UAE, and Saudi Arabia have all been affected to varying degrees by the closure of the Strait of Hormuz, stockpiling, and damage to ports and energy facilities. Furthermore, the latest research reports from commodity analysts emphasize that even if the Strait of Hormuz is reopened, restoring the flow of oil and gas "easy only to open the strait as a single element, difficult to return to the pre-war normal operation export chain", as there are still issues such as stranded oil tankers, full tanks, energy infrastructure repairs, and returning workers. Kuwait's announcement of force majeure due to the latest geopolitical developments is a medium-term positive for international oil prices, which have been on a downward trend recently, making short-term price fluctuations difficult to hedge against. Iranian military has effectively "semi-blockaded" the Strait of Hormuz, meaning that about 20%-30% of global energy, fertilizers, and critical raw materials flow is completely disrupted, along with tanker attacks and disruptions in shipping, a recent report from the International Energy Agency (IEA) showed that the end of February saw a US and Israel military action against Iran, triggering the largest supply disruption in the history of the global oil market. Analysts from international financial giant Macquarie stated in a report that if the Middle East geopolitical conflict continues into the end of the second quarter, oil prices may rise to $200 per barrel. International crude oil benchmark Brent crude futures prices plunged by about 9% on April 17; however, with the US seizing Iranian ships, Iran tightening passage again, and Kuwait announcing force majeure, prices rebounded by over 8% to $95 per barrel on Monday. In other words, the recent pullback appears to be based on a "diplomatic negotiation relaxation" tradable retreat, rather than a signal that the supply crisis has been resolved. As long as the 900-1100 thousand barrels per day missing from Middle Eastern oil supplies is not substantially restored, the international oil price's downward potential will be significantly limited, and any negative news related to the Strait of Hormuz, ceasefire breaches, or facility repairs not meeting expectations may trigger a sharp short-term rally. While current futures prices for oil are relatively moderate, the spot market for Middle Eastern oil has shown stronger signals of tension, with some physical prices nearing $120-150 per barrel, indicating that the physical shortage is more severe than the financial market pricing. For commodity market investors, while the current futures prices are relatively moderate, the spot market has shown stronger signals of tension, with some physical prices nearing $120-150 per barrel, indicating that the physical supply shortage is more severe than the financial market pricing. For investors, this means that if subsequent talks continue to fluctuate, and the Strait of Hormuz does not reopen as expected, oil prices are more likely to exhibit a "easier rise and harder fall" risk-return structure; what can truly lead to a sustained decline in oil prices is not just opening the strait in name only, but real restoration of the export chain, shipping rhythm, and utilization rates of the Gulf's production capacity, which also means that if subsequent talks continue to fluctuate, and the reopening of the Strait of Hormuz is below expectations, oil prices are more likely to exhibit a "easier rise and harder fall" risk-return structure; what can truly lead to a sustained decline in oil prices is not just opening the strait in name only, but real restoration of the export chain, shipping rhythm, and utilization rates of the Gulf's production capacity.