Goldman Sachs sees oil Middle East to restore oil supply immediately after Iran issue resolves

Barely a week after the International Energy Agency (IEA) projected restoration of crude oil supply to take nearly two years, the United States-headquartered multinational investment bank – Goldman Sachs – contradicted this view. The bank now viewed supply curtailment caused due to damage of oil fields and refineries in the Iranian drone and missile attacks to be fully restored within months once the ongoing US-Iran conflict resolves and the Strait of Hormuz opens.



Goldman Sachs said in a report on Thursday, “Around 14.5 million barrels per day (bpd) of Gulf crude output – around 57 percent of pre-war supply – was forced to go offline, primarily due to precautionary shutdowns and stock management rather than physical damage to oilfields. A safe and sustained reopening of the Strait of Hormuz in the absence of renewed attacks on oil infrastructure would allow production to return relatively quickly, supported by capacity in Saudi Arabia and the United Arab Emirates (UAE).”

Agencies forecasted Gulf producers could recover about 70 percent of lost output within three months and around 88 percent within six months. However, Goldman Sachs cautioned the prolonged closure could raise the risk of lasting damage to supply.

IEA’s two-year forecasts
The International Energy Agency (IEA), an autonomous intergovernmental organisation, projected the full restoration of Middle East oil disruptions to take two years. The agency claimed that the disruption involves widespread damage to energy assets and threats to shipping, with oil losses expected to rise, impacting Europe and Asia with higher prices. Recovery to pre-war levels is estimated to take approximately two years, with timelines varying significantly by country (e.g., Iraq taking longer than Saudi Arabia).

Over 12 million barrels of oil have been lost since the conflict began. The situation is described as one of the most severe energy security threats in history. No new tankers were loaded in March from key areas, and the shortfall of jet fuel and diesel is expected to hit Europe by April or May. The IEA is considering further releases of strategic reserves following the initial 400 million barrels release. IEA Executive Director Fatih Birol emphasized that markets have not fully priced in the risks of a prolonged disruption, especially if the Strait of Hormuz remains impacted.

Morgan Stanley’s projections
The American multinational investment bank Morgan Stanley, in its latest report released recently expects oil supply chains to take months to normalise, even if the Strait of Hormuz is reopened. Under its base-case scenario, oil exports through the Strait of Hormuz are expected to remain low in April, recover to about 70 percent of lost volumes between May and July, and return to steady-state levels by October.

On the demand side, the Organisation of the Petroleum Exporting Countries and allies (OPEC+), in its monthly report titled Monthly Oil Market Report (MOMR) released on Monday, lowered its forecast for world oil demand in the April–June 2026 quarter by 0.5 million barrels per day (bpd) to 105.07 million bpd. For the full year, global oil demand growth for 2026 is projected at 1.4 million bpd year-on-year, unchanged from the previous month’s assessment. An upward revision for the January–March 2026 quarter was made for China, based on actual data reflecting better-than-expected performance in the country.

Demand growth for April–June 2026 was revised downward for both the Organisation for Economic Co-operation and Development (OECD) and non-OECD countries, driven mainly by a slight, transitory weakness in oil demand growth amid ongoing developments in the Middle East. However, this weakness is expected to be offset in the second half of the year. The forecast for global oil demand in 2027 also indicates robust growth of 1.3 million bpd year-on-year, unchanged from the previous month’s assessment.

Demand destruction
IEA has projected global oil demand to contract by 80,000 bpd this year as the Iran war disrupts the global outlook. This represents a downward revision of 730,000 bpd from last month’s report. Additionally, a forecast decline of 1.5 million bpd in the April–June 2026 quarter would mark the sharpest contraction since the Covid-19 pandemic curtailed fuel consumption. Initially, the steepest cuts in oil demand have been observed in the Middle East and Asia-Pacific regions, particularly for naphtha, liquefied petroleum gas (LPG), and jet fuel. However, demand destruction is expected to spread further as supply constraints and elevated prices persist.

The two-week ceasefire announced last week in the Middle East conflict has provided some respite to global oil markets, just as the impact of supply and trade disruptions was beginning to spread worldwide. However, it remains uncertain whether the ceasefire will evolve into a lasting peace and lead to the restoration of normal shipping flows through the Strait of Hormuz. This uncertainty stems from Iran’s reluctance to relinquish control over the key global waterway, which handles around 20 percent of global crude oil shipments, as well as US President Donald Trump’s threats to deploy underwater missiles.

Plummeting supply
IEA further estimates that global oil supply plummeted by 10.1 million bpd to 97 million bpd in March, as continued attacks on energy infrastructure in the Middle East and ongoing restrictions on tanker movements through the Strait of Hormuz led to the largest disruption in history. OPEC+ production fell by 9.4 million bpd month-on-month to 42.4 million bpd, while non-OPEC+ supply declined by 770,000 bpd month-on-month to 54.7 million bpd, as lower Qatari output offset gains in Brazil and the United States.

Global observed oil inventories fell by 85 million barrels in March, with stocks outside the Middle East Gulf drawn down sharply by 205 million barrels (-6.6 million bpd) as flows through the Strait of Hormuz were severely constrained. At the same time, with limited outlets following the effective closure of the Strait, floating storage of crude and oil products in the Middle East rose by 100 million barrels, while onshore crude stocks in the region increased by 20 million barrels. China added 40 million barrels of crude to its reserves.



DILIP KUMAR JHA
Editor
dilip.jha@polymerupdate.com