It could take up to two years to regain a significant portion of oil and gas production lost during the conflict in Iran, according to Fatih Birol, the head of the International Energy Agency (IEA). This timeline is crucial as markets are currently treating the disruption as a short-term issue, which it is not.
Damage has occurred to oil fields, refineries, and pipelines throughout the Persian Gulf. The Strait of Hormuz, a vital export route for crude and other fuels, is largely closed, leading to a significant reduction in available oil, with hundreds of millions of barrels taken off the market.
In a recent interview with Bloomberg’s Wall Street Week, Birol challenged the belief that supply would quickly recover once shipping resumes. He emphasised that reopening the Strait does not mean production will return to previous levels immediately. Repairs to facilities will be necessary, and this process will take time.
The IEA previously estimated that the conflict has eliminated about 13 million barrels per day of oil production, with losses from refined products being even greater. Over 80 oil and gas facilities in the region have been damaged.
Recovery of natural gas production may take even longer, with some liquefied natural gas (LNG) terminals possibly needing more than two years to operate normally again.
The impact on the market is evident, with spot crude prices for immediate delivery increasing, some approaching $150. Buyers in Europe and Asia are competing for limited supplies, leading some refiners to reduce operations due to shortages.
Demand is beginning to shift, marked by signs of decreased usage, including fuel rationing and reduced industrial activity, particularly in emerging markets in Asia and Africa, which are heavily reliant on imported energy.
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