A ceasefire agreement may silence the guns, but the extensive damage inflicted on the Middle East's energy infrastructure has plunged global oil and gas markets into a protracted supply crisis. The reopening of the Strait of Hormuz is merely the starting point on a long road to recovery.
According to a report on April 8, the Iran war has severely damaged dozens of refineries, oil fields, and natural gas export terminals in the region. The International Energy Agency estimates that over 40 critical energy assets have been destroyed, resulting in the largest supply disruption in history. Research firm Rystad Energy estimated last month that the cost of repairing the region's energy infrastructure exceeds $25 billion.
Following the announcement of the ceasefire, the global benchmark Brent crude oil price fell approximately 12% to around $96 per barrel on Wednesday, yet it remains significantly higher than the roughly $60 level seen in early January.
Consulting firm Eurasia Group anticipates that oil prices will stay above $80 per barrel this year, even with the cessation of hostilities. Henning Gloystein, Managing Director of Energy at Eurasia Group, stated, "Even if a Middle East ceasefire allows for a swift reopening of the Strait of Hormuz, supply pressures will persist."
The primary challenge for global markets post-ceasefire is not crude oil transportation but a significant contraction in refining capacity. Gloystein estimates that approximately one-third of the refineries in the Gulf region were damaged in airstrikes, a loss of capacity that "will take at least months to repair." Even if oil-producing nations resume pumping, the market will still face shortages of refined products like diesel, gasoline, and jet fuel.
One of the most severely damaged facilities is the UAE's Ruwais refinery, one of the largest in the world. Rystad estimates that the damage is concentrated in its western section, which accounts for half of the entire plant's capacity; a full restoration is expected to take months.
The situation in Kuwait is equally severe. Gloystein noted that damage to Kuwaiti refineries has already led to shortages of marine fuel and jet fuel in Asia and Europe. A drone attack last week triggered a fire at the Mina Al-Ahmadi refinery, compounding losses from multiple incidents in March. The CEO of Kuwait National Petroleum Company stated last month that it would take three to four months after the war ends to restore full production capacity.
In Bahrain, state-owned energy company Bapco Energies declared force majeure and suspended contractual obligations following a fire at its Sitra refinery last month. This refinery, with a daily processing capacity of about 400,000 barrels, had just completed upgrades; the damage represents a major blow to Bahrain's refining capacity.
The impact on the liquefied natural gas sector has been particularly severe. Qatar's Ras Laffan, one of the world's largest LNG facilities, saw approximately 17% of its capacity disabled by Iranian strikes. Rystad Energy indicated that full repairs could extend until around 2030, with costs estimated at about $10 billion.
Qatar Energy confirmed that two of Ras Laffan's 14 LNG liquefaction trains were damaged. Analysis of satellite imagery by Saeed Ali Muneeb, an analyst at data provider Kayrros, revealed that a large cryogenic heat exchanger in one train had collapsed, while another suffered severe fire damage.
Cryogenic heat exchangers are highly customized units, as tall as a 15-story building, with diameters exceeding 15 feet and containing thousands of miles of intricate piping. Harri Kytömaa, an engineer at consulting firm Exponent, stated, "Once destroyed, you have to build a new one." Manufacturing a replacement alone could take over a year.
Furthermore, gas turbines that drive compressors for LNG trains already face delivery lead times of several years due to high demand from data centers. Also at Ras Laffan, Shell's high-profit Pearl gas-to-liquids facility was heavily damaged; the company said one of its two production lines would be shut down for at least a year.
The effects of the energy crisis extend to ports and upstream production. The UAE's Port of Fujairah, a crucial oil handling hub outside the Strait of Hormuz and a center for oil storage, trading, and ship bunkering, has been repeatedly targeted by Iranian drone attacks, leading to intermittent operations.
On the upstream production side, with no means to transport crude oil, Iraq, Saudi Arabia, Kuwait, the UAE, Qatar, and Bahrain collectively shut in approximately 7.5 million barrels per day of crude production in March, according to data from the U.S. Energy Information Administration.
Sudden well shut-ins are also geologically risky: a rapid pressure drop can cause wellbores to clog with heavy wax, requiring expensive chemical treatments to restart. In some older fields, such shocks can permanently alter reservoir dynamics, leading to irreversible production loss.
Ground-level reconstruction efforts face compounded bottlenecks. Replacing customized transformers, valves, and gas turbines can take years even in peacetime, while a significant number of specialized engineers and welders have left the conflict zone with Western contractors, creating a talent gap difficult to fill quickly.
Fraser McKay, Head of Upstream Analysis at consulting firm Wood Mackenzie, noted that the repair bill will erode the approximately $100 billion the oil and gas industry was projected to spend in the region this year—a figure covering everything from routine maintenance to new project development. He indicated that companies will prioritize repair work, delaying growth projects, and competition across the entire energy sector for equipment and engineers will further drive up costs.
"It's not just a money problem, it's a people problem," McKay said. "You can't just double the capability you can deploy to the region overnight."
Kytömaa was blunt about the scale of the destruction: "We have never seen anything like this." The ceasefire may mark the end of hostilities, but for the global energy market, the real test has just begun.
Comments