Report: Saudi Arabia to Cut Production by 2 Million Barrels/Day in Response to Strait of Hormuz Blockade

Saudi Arabia has cut crude oil production by approximately 2 million barrels per day to around 8 million barrels per day amid the blockade of the Strait of Hormuz and disruptions to regional supply chains, further tightening supply expectations in the world’s most critical export region.

According to Reuters on March 13, two sources familiar with the matter said that after shutting down two major offshore oil fields amid the Iran conflict, Saudi production has fallen to about 8 million barrels per day, with one source stating it is below 8 million barrels per day.

The supply-side pressure is not solely from Saudi Arabia. The International Energy Agency (IEA) reported on Thursday that Gulf oil producers, including Saudi Arabia, have collectively cut at least 10 million barrels per day and warned that if shipping flows do not recover quickly, losses could further increase.

Iran has stated that the world should prepare for oil prices of $200 per barrel. For investors, Saudi Arabia’s rapid shift from emergency production increases in February to significant cuts highlights that the impact of the blockade on physical oil flows has shifted from a risk scenario to a real constraint.

Two Major Offshore Oil Fields Shut Down, Pipeline Routes Restricted

According to a source cited by Reuters, the direct reason for the production cuts is the successive shutdown of the Safaniya and Zuluf offshore oil fields. These two fields together produce over 2 million barrels per day, mainly heavy and medium-heavy crude oil.

Saudi Arabia is currently rerouting more oil via land pipelines to Yanbu on the Red Sea coast to bypass the Strait of Hormuz.

However, these pipelines primarily transport light crude oil and cannot absorb the heavy oil released from the shutdown of the offshore fields, making it difficult to fully compensate for the production loss.

Significant Production Cuts, Diverging from Previous Emergency Increase Plans

The context of this reduction contrasts sharply with Saudi Arabia’s previous strategy of increasing production.

According to Reuters, in February, Saudi Arabia launched an emergency increase plan, raising daily supply to 10.11 million barrels and total output to 10.88 million barrels, aiming to build buffer reserves in case of Middle East supply disruptions following potential US and Israeli actions against Iran.

Now, a production level of 8 million barrels per day means a sharp decrease of over 2 million barrels from the February peak, nearly offsetting the emergency reserves built earlier by actual supply disruptions caused by geopolitical conflicts.

Overall Gulf Supply Disrupted, IEA Issues Warning

Since the US and Israel began airstrikes against Iran on February 28, Iran has blocked the Strait of Hormuz, a narrow waterway connecting the Persian Gulf and the Arabian Sea, one of the world’s most vital oil transit routes.

The IEA’s report on Thursday pointed out that Gulf oil producers have collectively cut at least 10 million barrels per day. The report also emphasized that if shipping flows do not recover quickly, production losses will continue to grow, exerting profound pressure on global energy markets.

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