Kuwait and UAE May Follow Iraq in Cutting Oil Output Due to Strait of Hormuz Crisis

Analysts warn that Kuwait and the United Arab Emirates could be the next major oil producers forced to slash output due to the escalating security crisis around the Strait of Hormuz, following Iraq's recent production cuts.

The key issue is the effective blockade of the critical shipping chokepoint. While formally open, transit through the strait has ground to a near halt after Iran attacked six vessels since the crisis began. This waterway is vital for global energy, handling one-fifth of the world's seaborne crude oil and liquefied natural gas.

Iraq was first to feel the pressure, cutting production by nearly 1.5 million barrels per day earlier this week. Analysts note this reduction could surge past 3 million barrels per day within days because Iraq lacks sufficient onshore storage capacity for unsold oil.

According to a recent JPMorgan analysis, Kuwait and the UAE have limited time before facing similar constraints. The report estimates Kuwait can store its produced oil for only 18 more days, while the UAE has a slightly longer buffer of 22 days. If export disruptions via the Strait continue beyond these periods, both nations will have no choice but to significantly reduce their extraction rates.

The logistical paralysis is severe. Shipping data from Vortexa and Kpler indicates approximately 300 oil tankers are currently stuck and unable to transit the strait.

The primary driver is not a formal closure but a de facto one created by the insurance market. Since hostilities began, insurance providers have either drastically increased premiums for vessels or refused coverage altogether for passage through the area. This makes transit economically unviable for most commercial carriers.

Despite the severe disruption, Iranian Foreign Minister Abbas Araghchi stated in an interview with NBC News that Tehran has "no intention of closing the Strait of Hormuz now." He added that as a nation at war, Iran is considering all possible scenarios.