Middle East Crude Supply Recovery to Take Years Amid Ongoing Conflict

Analysts project that Middle East crude supply will take at least two to three years to return to pre-war levels, despite growing expectations for a U.S., Iran ceasefire.

The delays in restoring production facilities, depletion of global inventories, and refining capacity constraints are expected to keep oil prices elevated for the foreseeable future. Lee Chung-jae, an analyst at Korea Investment & Securities, noted that even if the war ends immediately, there are concerns that labor will flock to AI data center construction, delaying the restoration of oil production facilities.

The core issue highlighted by Lee is the physical and human constraints on recovery work. Middle East oil supply affected by the Strait of Hormuz blockade amounts to roughly 20 million barrels per day. Even assuming 20% of production facilities have been damaged, that translates to 4 million barrels per day of lost supply, equivalent to more than 4% of global daily oil consumption.

Refining stocks are surging due to the destruction of Middle East and Russian oil fields and refining facilities, while petrochemical companies that use naphtha as feedstock are struggling. Lee attributed the chemical sector's underperformance to differences in inventory depletion timelines, with plastic products having substantial inventory built up in distribution channels.