Oil and gas production in the Middle East faces a “months-long” process toward normalization, even with a ceasefire deal in place, the energy consultancy Wood Mackenzie said on Wednesday.
Throughout the war’s first five weeks, the effective closure of the Strait of Hormuz by Iran has filled onshore storage tanks and forced producers throughout the Middle East to shut in, or halt, roughly 11 million barrels per day, Wood Mackenzie said.
Before any of that production can be restarted, oil tankers need confidence that they can safely and reliably begin transiting the strait, said Alan Gelder, Wood Mackenzie senior vice president of refining, chemicals, and oil markets.
“A ‘workable system’ of transit and shipowner confidence in the security of the transiting vessels is essential,” Gelder said. “Ballasting vessels are unlikely to enter via the Strait of Hormuz any sooner than a ‘just in time’ logistics basis, at risk of becoming trapped if hostilities resume.”
Even if shipping bottlenecks are cleared, which could take weeks, producers could face timelines of six to nine months to restart production at the wellhead, Wood Mackenzie said. Repairs to refineries may also impede the progress toward normalization.
In the gas market, repairs at QatarEnergy’s Ras Laffan LNG export terminal are likely to take roughly four months — something the company likely wouldn’t undertake without confidence in legitimate stability, Wood Mackenzie said.
The consultancy noted that major producers already had contingency plans in place before the war broke out, and that most, if not all, production can be brought back to pre-war levels. That said, the desire to move fast could create more problems.
“All this comes with a health warning,” said Fraser McKay, head of upstream analysis at Wood Mackenzie. “Operators hastened by regulators and governments to restore production too rapidly will risk doing more long-term damage to foundational assets.”