Summary
The U.S. Energy Information Administration said that some oil producers in the Middle East will not be able to bring output fully back to pre-conflict levels by the end of 2027, even under a scenario where global trade patterns start to normalize by early next year. Disruptions to shipping through the Strait of Hormuz and attacks on energy infrastructure have driven a marked reduction in production from the region, tightening global supply and contributing to multi-year highs in oil prices.
EIA findings and estimates
The agency estimated that roughly 5.5 million barrels per day of Middle East oil production was shut-in during July. The EIA notes that this volume represents over 5% of global consumption in its short-term energy outlook for August. These shut-ins have translated into a material supply shortfall on world markets.
The EIA expects flows through the Strait of Hormuz to remain under severe constraints through this month following renewed attacks on vessels in recent weeks. Its baseline assumption is that shipments will begin to rise slowly in September. The agency also highlighted that it had previously predicted an imminent increase in Hormuz shipments; those earlier forecasts did not materialize as the Iran war continued.
Outlook through 2027
Even if the bulk of Middle East production and international trade revert to pre-conflict patterns by early 2027, the EIA projects that about 600,000 barrels per day of regional output will still be shut-in through the end of 2027. On a global scale, the agency now anticipates that world oil production will average about 100.8 million barrels per day this year, roughly 1% below its July outlook. World oil demand is forecast at about 104 million barrels per day, unchanged from the July projection.
Market reaction
The agency said the widening supply deficit prompted it to raise oil price forecasts for both 2026 and 2027. The combination of supply disruptions, prolonged shut-ins and uncertainty over shipping through the Strait of Hormuz has left markets tighter and prices higher than previously expected.
Key Points
- About 5.5 million barrels per day of Middle East oil was shut-in in July, representing over 5% of global consumption.
- Flows through the Strait of Hormuz are expected to face severe constraints through this month, with shipments assumed to rise slowly starting in September.
- Even with a recovery in trade by early 2027, roughly 600,000 barrels per day of Middle East production are expected to remain shut-in through the end of 2027.
Risks and uncertainties
- Renewed attacks on vessels and energy infrastructure could prolong shipping constraints through the Strait of Hormuz, extending production shut-ins.
- Previous forecasts of a near-term rebound in Hormuz shipments have not materialized as the Iran war continued, signaling forecast uncertainty.
- The evolving balance between global oil supply and demand creates uncertainty for price trajectories and market stability.