The Organization of the Petroleum Exporting Countries (OPEC) announced on the 5th that eight major "OPEC+" oil-producing nations have decided to increase crude oil production by 206,000 barrels per day starting in May. This marks the second consecutive month these eight key producers have declared an output hike. However, this increment is negligible when faced with the largest crude supply disruption in history, amounting to a deficit of 11 million barrels per day, and the ongoing obstruction of navigation through the Strait of Hormuz. With major Middle Eastern oil producers already unable to increase market supply due to regional conflicts, this symbolic production increase remains merely theoretical.
Since late February, strikes by the United States and Israel against Iran have led to the prolonged closure of the Strait of Hormuz, severely reducing crude exports from Saudi Arabia, the UAE, Kuwait, and Iraq. Concurrently, the conflict has caused significant damage to numerous critical oil and gas production facilities across the Gulf region. Alternative routes bypassing the Strait of Hormuz are operating at full capacity but offer only minimal relief. As long as the strait remains closed, even restored production increases from Middle Eastern facilities cannot be transported.
Other OPEC+ members, such as Russia, are unable to boost output due to Western sanctions and infrastructure damage sustained during the Russia-Ukraine conflict. Consultancy firm Energy Aspects stated that as long as navigation through the Strait of Hormuz remains disrupted, this production decision holds "only academic significance." Jorge Leon, former OPEC official and current head of geopolitical analysis at Rystad Energy, commented, "In reality, it adds very little crude to the market. When the Strait of Hormuz is closed, additional crude from OPEC+ becomes largely irrelevant."
In a joint statement, the eight major producers expressed concern over attacks on energy infrastructure, noting that restoring damaged energy assets to full capacity is both costly and time-consuming, thereby impacting overall supply. They emphasized that any action undermining energy supply security, whether targeting infrastructure or disrupting international maritime routes, exacerbates market volatility. The relevant producing countries have proactively taken measures to ensure continuous and stable energy supplies, particularly by utilizing alternative export routes, which has helped mitigate market fluctuations.
Furthermore, several Gulf officials indicated that even if the conflict ends and the Strait of Hormuz reopens immediately, it would take months to restore normal operations and achieve production targets. OPEC+ sources acknowledged that although the daily increase of 206,000 barrels represents less than 2% of the supply shortfall caused by the strait's closure, it signals the alliance's readiness to ramp up production once the waterway reopens.
Notably, reports suggest that both the US and Iran have received a proposal for a ceasefire agreement, potentially effective from the 6th. Sources stated that Pakistan has drafted a framework for ending the conflict and has communicated with both nations. The proposal outlines an immediate ceasefire and the reopening of the Strait of Hormuz, followed by a final agreement within 15 to 20 days. A final deal may include Iran committing not to pursue nuclear weapons in exchange for sanctions relief and the unfreezing of assets. On April 6th, a senior Iranian official confirmed receipt of the latest ceasefire proposal from mediator Pakistan and stated that Iran is reviewing its contents. The official emphasized that Iran will not accept deadlines or pressure to make a decision and will not reopen the Strait of Hormuz in exchange for a "temporary truce," asserting that the US is not yet prepared for a permanent ceasefire.
Supply disruption warnings are escalating, intensifying upside risks for oil prices. Last month, the International Energy Agency (IEA) warned that the damage to the global energy supply chain from the Middle East conflict is unprecedented and will require a lengthy recovery period. The IEA reported that the conflict has caused "severe or very severe" damage to over 40 energy facilities across nine countries, with fields, refineries, and pipelines needing considerable time to resume production. The impact is equivalent to the combined effects of the two major 1970s oil crises and the 2022 natural gas crisis triggered by the Russia-Ukraine conflict. For a global energy market already facing significant shortages, the only short-term solution is the reopening of the Strait of Hormuz.
IEA Executive Director Fatih Birol warned that if the strait does not reopen to shipping, the volume of lost crude and refined products in April will be double the losses seen in March. Even if the conflict ends, normalization will take a long time. As buffer measures are rapidly depleted, Morgan Stanley stated in a March 30th report that the intensity of the Middle East supply shock is several times greater than the 2022 loss of Russian supply. The most challenging issue is not crude oil itself, but refined products—jet fuel, diesel, and naphtha markets are entering a phase of tangible shortage.
Analysts from ICIS, a global commodity market information service, similarly noted that regardless of how the Middle East conflict evolves in the coming weeks, the supply shock has irreversibly begun. Its impact on energy, chemicals, and the global economy will manifest in stages throughout the year, yet remains significantly underpriced by the market.
Amid ongoing severe volatility in global energy markets, several major banks issued warnings last week about rising oil price risks. J.P. Morgan stated in a report last Thursday that oil prices could surge to $120-$130 per barrel in the short term; if flows through the Strait of Hormuz remain disrupted until mid-May, prices risk breaking above $150. The bank warned that the magnitude and duration of any price spike will be key determinants of the severity of broader macroeconomic impacts. Sustained high oil prices would increase the risks of demand destruction and a potential economic recession.
J.P. Morgan's base case assumes that the Strait of Hormuz disruption will eventually be resolved through negotiation after a period of supply tightness and inventory draws. Under this scenario, oil prices are expected to remain above $100 per barrel in the second quarter. The report added that prices are projected to decline in the second half of 2026 as the strait partially reopens and oil inventories begin to normalize.
Goldman Sachs pointed out that in the short term, as long as oil shipments via the Strait of Hormuz remain constrained, prices are likely to continue rising. The bank added that if disruption risks persist, Brent crude could surpass its 2008 peak of $147.50 per barrel.
Energy market consultancy FGE NexantECA stated earlier last week that if the near-closure of the Strait of Hormuz due to the Middle East conflict persists for six to eight weeks, oil prices could soar to $150 or $200 per barrel. The company's Chairman Emeritus, Fereidun Fesharaki, said in a Tuesday interview, "100 million barrels of oil per week are not moving, 400 million barrels per month are not moving. So, for a period, these losses will have an astronomical impact on the market."
Bank of America adopted a more pessimistic stance. Its analysts expect that due to the impact of the Middle East conflict, even if hostilities end within weeks, the full year will still face slower economic growth, higher inflation, and oil prices at $100 per barrel. The bank's economists forecast that US economic growth in 2026 will be reduced by 50 basis points to 2.3%. Current projections show headline inflation reaching 3.6% in 2026, up from a previous forecast of 2.8%. Globally, economists have also downgraded GDP growth forecasts to 3.1% and raised inflation expectations to 3.3%.
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