Even if the crisis in the Strait of Hormuz is resolved, the market will still face certain structural supply frictions in the short term. According to a recent Goldman Sachs research report, if the Strait of Hormuz fully and safely reopens within the coming months and oil assets suffer no new attacks, the majority of the Gulf region's current production cuts—approximately 14.5 million barrels per day, 57% below pre-war levels—are expected to be restored within several months. However, for crude oil investors, the real point of contention lies in tail risks: a significantly prolonged closure of the strait would delay the final phase of capacity recovery and could even prevent a full restoration. External institutions project that, on average, only 70% of lost production would be recovered three months after reopening, and 88% after six months.
Key Constraints: Transport Bottlenecks and Well Physics Once the strait reopens safely, production restoration will not be immediate due to three major physical and logistical constraints:
Transportation Capacity for Drawdown: Pipeline capacity and availability of empty tankers are critical. Since the outbreak of the war, available empty tanker capacity in the Gulf region has fallen by approximately 50% (a reduction of 130 million barrels). Although historical peak flows through the Strait of Hormuz reached 23.3 million barrels per day (with a normal level of 20 million), and pipeline diversions peaked at 3.5 million barrels per day above normal, tight transport capacity remains the primary bottleneck.
Supply Chain and Labor: The availability of materials and workers required for well intervention and workover operations will directly impact the pace of production restoration.
Complexity of Well Flow Rates: Forced production cuts lead to complex changes in pressure and flow rates across different reservoir types. Wells require intervention and workover before reopening to restore prior productivity levels. As executives from oil service giants Halliburton and Weatherford have noted, the longer a well remains shut in, the more complex the restart becomes, with no guarantee of restoring the exact same flow rate.
Time as the Primary Adversary: Longer Shutdowns Mean Slower Recovery The report clearly states that the longer the strait remains closed, the more prolonged the production cuts will be, and the slower the subsequent recovery. This delayed effect manifests in three key areas:
Wells will require more complex repair work. Procurement of depleted inputs, such as drill pipes, will slow down. The drawdown of accumulated inventories will occupy transport capacity for new production over a longer period.
Basis for Robust Recovery: Limited Physical Damage and Spare Capacity Despite these constraints, Goldman Sachs believes that a "majority" of capacity can be restored within months, based on three key factors:
Limited Physical Damage: In contrast to liquefied natural gas (LNG) assets, publicly reported physical damage to oil fields remains very limited.
Saudi Aramco's Rapid Response Capability: In March, the President and CEO of Saudi Aramco stated that Saudi Arabia has ample spare capacity and, in some areas, has restricted well flow rather than implementing full shutdowns, allowing production to be ramped up "in days, not weeks."
Historical Precedent and Spare Capacity: Historical supply disruptions show that Saudi Arabia and the UAE typically deploy available spare capacity to stabilize markets. It is estimated that these two countries could deploy over 2 million barrels per day of spare capacity after a full and safe reopening.
Long-Term Tail Risks: Reservoir Variations and Potential "Scarring" Long-term investors must be wary of risks that full recovery could take several quarters, or may only be partial after a prolonged closure:
Significant Variations Across Fields and Countries: Gulf countries differ markedly in reservoir characteristics, infrastructure quality, maintenance levels, and sanction risks (e.g., Iran). For instance, data shows that Iran and Iraq have a higher share of production from relatively low-pressure reservoirs compared to other Gulf states (nearly half of Iran's reservoirs are assessed as low-pressure), increasing restoration difficulty.
Uncertainty in Historical Recovery Cycles: Past production cut events show wide variation in the speed and extent of recovery, and the current shock is unprecedented in scale.
"Scarring Risk" from Resumed Hostilities: Although not a base-case forecast, the risk of significant "scarring" (permanent damage) to oil production capacity would rise substantially if hostilities resume, a precedent seen in the five largest historical oil supply shocks.
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