Ceasefire fails to resolve the energy impasse: heavy damage to Middle East facilities, the global oil and gas supply crisis is far from over

Although the Middle East ceasefire agreement has paused the fighting, the large-scale damage to the region's energy infrastructure has dragged the global oil and gas market into a protracted supply crisis, and the reopening of the Strait of Hormuz is only the start of the repair journey.

On April 8, reports indicated thatthe war in Iran has heavily damaged dozens of refineries, oilfields and natural gas export terminals across the Middle East. The International Energy Agency estimates that more than40 critical energy assets were damaged, causing the largest supply disruption in history; Rystad Energy estimates thatthe cost to repair the region's energy infrastructure will exceed $25 billion.

After the ceasefire announcement,the global benchmark Brent crude plunged about 12% in a single day to $96/barrel, but still remains roughly 60% above the $60/barrel level seen in early January. Eurasia Group predicts that even if hostilities end completely,oil prices will remain above $80/barrel this year, “ the reopening of the Strait of Hormuz will not relieve the ongoing supply pressure ”.

Severe damage to refining capacity has become the most prominent problem, and refined product shortages could persist for months. Henning Gloystein, Managing Director of Eurasia Group's energy practice, estimates that about one-third of refineries in the Gulf were damaged in airstrikes,and repairs will take at least several months. Even if oil-producing countries resume pumping, shortages of refined products such as diesel, gasoline and aviation fuel will persist.

Among them,the Ruwais refinery in the UAE (one of the world's largest refineries) suffered heavy damage to its west complex, which accounts for half of the plant's total capacity, and a full recovery will take months; the Mina Al-Ahmadi refinery in Kuwait, due to drone attacks and multiple incidents,will need 3 to 4 months to return to full-load production, which has already led to shortages of marine fuels and aviation fuel in Asia and Europe;the Sitra refinery in Bahrain (processing 400,000 b/d)declared force majeure after the attack, suffering a significant hit to capacity.

The liquefied natural gas (LNG) sector was hit even more severely,with Qatar's Ras Laffan (one of the world's largest LNG facilities) seeing about 17% of its capacity knocked out, and Rystad Energy says thatfull repairs could be delayed until 2030, at a cost of roughly $10 billion. QatarEnergy confirmed thattwo of the plant's 14 LNG liquefaction trains were damaged, including the collapse of a large cryogenic heat exchanger on one train and severe burn damage to another. Such specialized equipment alone takes more than a year to manufacture, and gas turbine delivery times can stretch to several years, further delaying repairs. In addition, a Shell-operated Pearl GTL facility at Ras Laffan will have one production lineshut for at least one year.

The crisis has also spread to ports and upstream production. Fujairah port in the UAE (a major oil hub outside the Strait of Hormuz) has been hit multiple times by drone attacks, disrupting operations;In March, six countries including Iraq and Saudi Arabia shut in a combined roughly 7.5 million barrels per day of crude oil production, sudden shut-ins can not only lead to wellbore plugging, but some mature oilfields may suffer irreversible production losses.

Onshore reconstruction faces multiple bottlenecks: customized equipment already has peacetime lead times of several years, a large number of specialist engineers withdrew with Western contractors, and the talent shortfall is difficult to fill in the short term. Wood Mackenzie analysis shows thatthe $25 billion repair bill will erode the region’s oil and gas industry’s projected $100 billion total spending for this year, companies will prioritize repairs and delay growth projects, and competition for equipment and talent will further drive up costs.

A ceasefire may mark the end of hostilities, but for the global energy market the long timelines for facility repairs, irreversible production losses, and multiple obstacles during reconstruction mean the real test is only just beginning.