IEA: Middle East conflict has severely damaged energy facilities; restoring oil and gas production capacity could take as long as two years

IEA Executive Director Fatih Birol said recently that oil and gas production has been severely disrupted by conflicts involving Iran, and a significant portionof capacity recovery may take as long as two years.

He noted that markets generally view supply disruptions as short-term, but that assessment does not match the facts. Hit by conflict in the Middle East, oilfields, refineries and pipelines in the Persian Gulf have suffered varying degrees of damage;the Strait of Hormuz has been effectively closed, severing a key global energy export route, and the twin shocks have created a supply shortfall of hundreds of millions of barrels.

In the interview Birol explicitly rejected the view “that the resumption of shipping would quickly restore supplies”: reopening the Strait of Hormuz does not equal capacity recovery, facility repairs and production restarts both require substantial time.

The IEA previously estimated that the conflict has causedup to 1.3 million barrels/day of oil production capacity loss, with an even larger refined product export shortfall, and more than80 oil and gas facilities in the Gulf damaged. Among these, the gas supply recovery period is longer; after some LNG receiving terminals were damaged,resuming operations may take more than two years.

The shock has already reached the spot market: spot oil prices have surged, with some prompt-delivery crude approachingUSD 150/barrel. Refineries in Europe and Asia are competing for limited supplies, and some companies have cut run rates due to tight supply.

Early signs of “demand destruction” have appeared on the demand side: fuel rationing, reduced industrial activity, and rising inflationary pressure in energy-importing countries, which are expected to hit import-dependent emerging markets in Asia and Africa hardest.