bahrainthismonth.com | JUNE 2026 OPINION 76 Petrol Pressure Dr. Jarmo Kotilaine is a seasoned development economist with 30 years’ experience across academia, consultancy, banking and government. After a gradual downward trend amid excess supply concerns since spring 2024, oil prices have risen significantly following the onset of the conflict involving Iran at the end of February. Having dipped below $70 a barrel last August, the monthly average of the international Brent benchmark oil price reached $66.6 per barrel in January and $70.9 in February. A sharp shift followed as prices rose to $102 in March and then to $117.3 per barrel in April. A world that, just months ago, was thought to be awash with oil is suddenly facing an unprecedented supply crunch that invites comparisons with the 1970s oil crisis or worse. A Sudden Shock The immediate explanation for this market shock is the de facto closure of the Strait of Hormuz by Iran, which has since evolved into a ‘double lock’ due to the US blockade of Iranian ports since April 13. Gulf oil companies have been among the most vocal voices warning about the scale of disruption this state of affairs could entail. Saudi Aramco CEO Amin Nasser said on May 10 that the world had lost about one billion barrels of oil over the preceding two months and is set to lose a further 100 million barrels for every week that disruption continues at a comparable level. Mr. Nasser cautioned that energy markets would take time to stabilise even once normal flows resume. Moreover, years of underinvestment in oil production have now compounded the strain on already low global inventories. The crisis has highlighted the global significance of the Strait of Hormuz as a critical chokepoint for which only limited alternatives currently exist. While regional pipeline capacity has expanded over the years, it falls far short of a comprehensive connected network that would deliver anything close to full flexibility for the GCC as a whole. Routes Around Hormuz The most important alternative outlet at the moment is Saudi Arabia’s East-West Pipeline. Also known as the Petroline, this is a 1,201km pipeline that runs from the Abqaiq oil fields in the Eastern Province to Yanbu on the Red Sea. It was originally built during the war between Iran and Iraq in the 1980s to allow Saudi oil exports to bypass the ‘tanker war’ that disrupted shipping in the Strait of Hormuz at the time. The maximum capacity of the pipeline was recently expanded from five to seven million barrels per day. The 406km Abu Dhabi Crude Oil Pipeline runs from the Habshan onshore field to Fujairah on the Gulf of Oman. The pipeline has been operational since 2012. It can currently carry a maximum of 1.5 million barrels a day, although the UAE is now reportedly accelerating plans to double its capacity by 2027. While substantial, the capacity of these pipelines falls short of the total production of both Saudi Arabia and Abu Dhabi. Saudi Arabia produced some 10.5 million barrels per day in February, which declined to 7.25 million in March. UAE production in February totalled 3.64 million barrels per day, but this dropped to 2.37 million in March. Kuwait saw an even bigger decline from 2.54 million to 1.19 million barrels per day. In total, the Hormuz closure is estimated to have removed the equivalent of some 12.3 million barrels per day from the global market, almost comparable to the current total output of the US. Limited Spare Capacity Problematically, the ability of other oil producers to make up for the shortfall in the Gulf is limited. The estimated oil supply loss of 12.3 million barrels per day from the global market compares with a much smaller 5.5 million barrels per day net increase by other producers. Most of this, some 3.8 million barrels per day, is being supplied by the US, which has now become a net oil exporter for the first time since the Second World War. The reason oil prices have not risen further is that countries have drawn down their stockpiles and strategic reserves. For instance, China has reduced its seaborne imports from some 14 million barrels per day a year ago to 8.5 million. Some demand erosion has also been caused by the higher prices, including regulatory restrictions on energy use in some countries. However, reserves are not infinite and analysts warn that they could fall to dangerously low levels by the summer. Similarly, while the US has re-emerged in recent years as a top producer globally, its growth potential faces constraints. Much of the incremental oil supply in recent years has come from shale oil, which has much higher extraction costs than conventional deposits, typically requiring a price above $60 per barrel. Many shale companies have been reluctant to scale up drilling for fear that a subsequent price decline would eliminate their margins, as has happened during previous oil price downturns. Moreover, oil exploration and drilling are time-consuming and capitalintensive processes that are highly sensitive to demand expectations and the cost of capital. Even with the more nimble shale producers, an investment made today will not boost production before next year. Conventional projects have lead times of several years at a minimum. Problematically, the bulk of global spare capacity in oil today is in the Gulf region. The Price Outlook Two narratives have been contending in recent weeks about the future of oil prices. On the one hand, many link the end of the conflict and the resumption of shipping through the Strait of Hormuz to a swift rebalancing of the market. The implication is that a return to the pre-war state of affairs is merely a matter of time. Indeed, futures markets continue to show prices falling back into double digits within months. However, not only is there continued uncertainty about the duration and nature of the conflict, but the post-conflict ‘normalisation’ of the market is also certain not to be instantaneous. Delays in restarting production and mobilising infrastructure are estimated to remove another one billion barrels from this year’s supply, even under the most optimistic assessments. The bottom line is that high oil prices appear to be here to stay, at least in the near to medium term.
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