Saudi Arabia has begun cutting oil output as the escalating U.S. and Israeli war against Iran disrupts shipping across the Gulf region, pushing crude prices sharply higher and triggering emergency discussions among major economies. On Monday, benchmark oil prices briefly surged close to $119 per barrel, representing a jump of nearly 30% since the conflict began and raising fears of a global energy shock.
According to Reuters, Saudi Aramco has reduced production at two oilfields, adding to earlier output cuts by Iraq, Kuwait, Qatar, and the United Arab Emirates, measures that reflect a cascading supply disruption across the Gulf as export routes become increasingly unreliable and storage capacity fills up due to stalled shipments.
The supply squeeze is already significant. Roughly 200 million barrels of oil have been removed from global supply over the past ten days as tankers remain stranded and producers scale back operations. Hundreds of oil tankers are reportedly idling inside the Gulf and near the Strait of Hormuz, where Iranian threats against shipping have made transit increasingly risky.
The situation has prompted urgent discussions among the G7 countries about releasing strategic oil reserves. The International Energy Agency coordinates emergency stockpiles among major industrialized economies, including more than 1.2 billion barrels held in public reserves and an additional 600 million barrels in industry storage. A coordinated release could be approved by G7 leaders later this week if supply disruptions worsen.
Production disruptions are spreading across the region. Iraq has reportedly cut output at its southern oilfields by roughly 70%, reducing production to around 1.3 million barrels per day. Kuwait Petroleum Corporation has also begun curtailing output and declared force majeure on certain shipments. In Bahrain, the state-owned Bapco Energies declared force majeure after an attack damaged parts of its refinery complex.
Saudi Arabia has begun diverting some crude exports through pipelines to the Red Sea in an effort to bypass the Gulf shipping bottleneck. However, the vast majority of regional oil exports normally pass through the Strait of Hormuz, making the disruption extremely difficult to offset through alternative routes.
Governments around the world are preparing emergency responses as energy costs rise rapidly. U.S. gasoline prices climbed more than 11% in the past week. Senate Minority Leader Chuck Schumer has urged the administration to release oil from the U.S. Strategic Petroleum Reserve, while President Donald Trump has attempted to downplay concerns about the impact on American consumers.
Japan, which imports roughly 95% of its oil from the Middle East, has instructed its national oil reserve storage facilities to prepare for a possible release of crude. South Korea has announced fuel price caps for the first time in nearly three decades in order to limit inflationary pressure from rising energy costs.
Several Asian countries are also implementing emergency energy policies. Vietnam has temporarily removed tariffs on fuel imports, Bangladesh has closed universities in order to conserve electricity and fuel supplies, and China has instructed its refiners to halt fuel exports and attempt to cancel previously scheduled shipments.
The natural gas market is also being affected. Qatar, the world’s second-largest exporter of liquefied natural gas, has halted LNG exports amid the escalating conflict. In an interview with the Financial Times, Qatar’s Energy Minister Saad al-Kaabi warned that even if the United States deploys naval forces to escort tankers through the Strait of Hormuz, the route could remain too dangerous for normal commercial traffic.
France has begun deploying naval assets in response to the crisis. President Emmanuel Macron announced that approximately a dozen French naval vessels are being positioned across the Mediterranean, the Red Sea, and potentially near the Strait of Hormuz to provide defensive support to allies threatened by the conflict.
Several major global shipping insurers have begun suspending coverage for vessels entering the Persian Gulf, dramatically increasing the cost of maritime transport and further discouraging tanker traffic through the region.
If the Strait of Hormuz remains largely closed for more than a few weeks, global oil prices could move well above $130 per barrel, a level that would significantly increase inflation pressures worldwide and potentially trigger coordinated releases of strategic petroleum reserves across multiple countries.
Financial markets are already reacting to the disruption. Energy stocks surged across major exchanges Monday, while airline and transportation companies declined amid expectations of sharply higher fuel costs.
This US/Israel-Iran conflict is producing one of the most severe disruptions to global oil supply since the early stages of the war in Ukraine in 2022. The recipe for trouble ahead includes halted shipping, regional production cuts, and geopolitical escalation, which rapidly transformed the Gulf energy market into the central economic front of the widening conflict.
