West Asia’s crude supply has recovered to around 14.6-15 million barrels per day (mbpd) after nearly 2 mbpd returned within three weeks of the June 17 preliminary US-Iran agreement, easing fears of a prolonged supply shock and pulling Brent crude to around $72 a barrel, its lowest level in nearly three months.
The faster-than-expected rebound has prompted Rystad Energy to bring forward its forecast for a full regional supply recovery by an entire quarter to the end of 2026. However, it cautioned that the normalisation of tanker traffic through the Strait of Hormuz remains critical to sustaining the recovery.
Regional shut-in production has declined to 9.6 mbpd from 11.7 mbpd just three weeks ago after Washington granted Iran a 60-day waiver to resume oil exports and Gulf producers accelerated restart schedules.
Rystad now expects total outages to fall below 2 million bpd by the end of the third quarter, with West Asia’s crude production climbing back to around 24-25 mbdp by December, nearly a quarter earlier than previously projected.
“Two million barrels a day came back online in three weeks, and the recovery is spread across the region. Iran is moving fastest because its shut-in period was shorter and upstream damage was limited. Kuwait has already lifted all force majeure notices and is offering July cargoes by tender. Saudi Arabia is on track for a record 4.5 mbpd through Yanbu this month. The supply picture is clearly improving,” said Aditya Saraswat, MENA Research Director at Rystad Energy.
The rebound, however, remains uneven. Saudi Arabia and the UAE accounted for nearly 65% of the crude that continued flowing during the conflict, supported by pipeline routes that bypass the Strait of Hormuz. Their ability to keep exports moving has enabled a quicker return to normal operations than countries that rely heavily on the strategic waterway.
Iran is expected to post the sharpest production recovery. Rystad estimates Iranian crude output will increase from 2.4 million bpd currently to 3.1 mbpd by August and could rise to 3.3 mbpd by year-end if sanctions relief is extended beyond August. That would take Iranian output above pre-conflict levels. Following the 2016 Iran nuclear deal, the country added nearly 1 million bpd within a year, providing a benchmark for the pace of the current ramp-up.
Saudi Arabia’s export infrastructure has emerged as a major stabilising factor. Its 7 mbpd East-West Pipeline enabled shipments through the Red Sea port of Yanbu even when Gulf routes were constrained. Yanbu exports have risen from less than 1 million bpd before the conflict to 3.3 million bpd in March, 4 mbpd in April and an estimated record 4.5 million bpd this month. Higher crude prices also lifted Saudi oil export revenues to their highest level in nearly four years in March despite lower volumes shipped through Gulf coast routes.
The UAE is also strengthening its bypass capacity. ADNOC is expanding the Habshan-Fujairah pipeline to raise capacity from 1.8mbpd to 3.3 mbpd by around 2027.
The country has installed crude production capacity of 4.85 mbpd, compared with pre-conflict output of 3.4 mbpd, and plans to increase capacity to 5 mbpd next year, with longer-term potential of 6 mbpd.
Kuwait and Iraq are expected to recover more slowly. Both countries depend heavily on the Strait of Hormuz and operate mature reservoirs that require longer restart timelines. Kuwait has lifted its force majeure notices and started offering July cargoes, but Rystad expects production from such fields to recover more gradually.
Despite the faster supply rebound, the Strait of Hormuz remains the decisive variable for oil prices. Gulf storage tanks are currently 50-60% full, allowing producers to sustain exports temporarily by drawing down inventories. However, if tanker traffic does not normalise soon, producers may have to throttle back output, pushing a full recovery into next year.
“The variable that will determine how quickly prices settle at a new level is Hormuz transit volumes. Storage tanks across the Gulf are around 50% to 60% full, so if tanker traffic through the strait does not pick up in the near term, producers will need to throttle back output, and the full recovery will shift into next year. The diplomatic agreement is a necessary first step, and physical tanker flows through Hormuz are what we are watching now,” Saraswat said.
Rystad noted that West Asia has recovered from every major supply disruption over the past six decades, including the Arab oil embargo, the Iran-Iraq war and Iraq’s invasion of Kuwait, with production eventually reaching new highs after each crisis. While the 2026 conflict is the largest volume shock recorded in the region, the pace of recovery suggests global oil markets are moving back towards balance faster than expected, provided tanker movements through the Strait of Hormuz continue to improve.
Source: The Financial Express
