Brent crude is trading near US$73 a barrel, close to its lowest level in three months, as markets adjust to a faster-than-anticipated recovery in Middle East oil supply following the recent regional conflict.
According to new estimates from Rystad Energy, shut-in production across the Gulf fell to 9.6 million barrels per day in mid-June, down sharply from 11.7 million barrels per day just three weeks earlier.
The acceleration follows a preliminary agreement between the United States and Iran on June 17 and a subsequent decision by Washington to suspend Iranian oil sanctions for 60 days.
Rystad has moved forward its forecast for a full regional supply recovery by a quarter, now projecting completion by the end of 2026.
Aditya Saraswat, MENA research director at Rystad Energy, said roughly two million barrels a day have returned to the market in three weeks, with the rebound spread unevenly across producing nations.
Iran is recovering fastest because its shut-in period was shorter and upstream damage was limited.
Kuwait has lifted all force majeure notices and is offering July cargoes by tender, while Saudi Arabia is on track for record flows of 4.5 million barrels per day through its Yanbu terminal this month.
Saraswat noted that the key variable going forward is transit volume through the Strait of Hormuz.
Gulf storage tanks are currently 50 to 60 per cent full, and producers have drawn on those reserves to keep exports flowing while the strait remained largely closed.
If tanker traffic does not normalise soon, output will need to be throttled back again, delaying full recovery into next year.
Saudi Arabia and the United Arab Emirates together account for about 65 per cent of current regional output, having maintained exports through pipeline bypass routes during the conflict.
Iran is expected to see the sharpest production increase, rising from 2.4 million barrels per day currently to 3.1 million barrels per day by August, and potentially 3.3 million barrels per day by year’s end if sanctions relief continues.
That would put Iranian output above pre-conflict levels, echoing the roughly one million barrel per day gain the country achieved in the year following the 2016 nuclear deal.
Sustaining that growth longer term is less certain.
Iranian fields face steep natural decline rates, and the country has depended on domestic contractors since international oil companies departed in 2018.
Those contractors generally lack the capital and technology to reverse structural declines, though a return of international firms could change that picture from 2027 onward.
Saudi Arabia intends to keep pipeline exports at current elevated levels even after the strait fully reopens, while the UAE is expanding its Habshan-Fujairah pipeline and pursuing higher production targets in the years ahead.
Rystad notes that the Middle East has recovered from every previous supply shock, including the Arab oil embargo, the Iran-Iraq war and the invasion of Kuwait, eventually reaching new production highs each time.
Whether the current recovery holds to its accelerated timeline now depends largely on how quickly shipping through Hormuz returns to normal.
