Global oil markets are rapidly repricing supply risks after crude production across the Middle East recovered faster than expected, prompting energy consultancy Rystad Energy to bring forward its forecast for a full regional output recovery.
Brent crude was trading around $73 per barrel on Thursday, close to its lowest level in three months, as traders responded to improving supply conditions following recent diplomatic developments between the United States and Iran.
According to Rystad Energy, shut-in crude production across the Gulf has fallen to 9.6 million barrels per day (bpd) in mid-June from 11.7 million bpd just three weeks earlier, reflecting a swift return of production capacity across key exporting countries.
The consultancy attributed the acceleration to the preliminary U.S.-Iran agreement reached on 17 June and Washington’s subsequent decision to grant Iran a 60-day waiver allowing oil exports to resume.
As a result, Rystad has revised its outlook for a full regional recovery, now expecting Middle East production to return to pre-conflict levels by December 2026, around one quarter earlier than previously forecast.
Iran Leads Regional Recovery
Rystad Energy’s Middle East and North Africa Research Director, Aditya Saraswat, said approximately 2 million bpd of production had returned within three weeks, with Iran leading the recovery.
“Iran is moving fastest because its shut-in period was shorter and upstream damage was limited,” Saraswat said.
The consultancy projects Iranian oil production to increase from approximately 2.4 million bpd currently to 3.1 million bpd by August. If sanctions relief extends beyond the current 60-day period, output could reach 3.3 million bpd by year-end, exceeding pre-conflict production levels.
Rystad noted that following the 2016 nuclear agreement, Iran increased crude production by nearly 1 million bpd within a year, although sustaining long-term growth will depend on continued investment and the return of international oil companies.
Saudi Arabia and UAE Expand Alternative Export Routes
Saudi Arabia and the United Arab Emirates have also strengthened their ability to maintain exports by relying on pipeline infrastructure that bypasses the Strait of Hormuz.
Saudi Arabia’s 7 million bpd East-West Pipeline enabled crude exports through the Red Sea port of Yanbu during the conflict, with shipments expected to reach a record 4.5 million bpd this month.
The UAE is similarly expanding its Habshan-Fujairah pipeline, increasing bypass capacity from 1.8 million bpd to 3.3 million bpd by around 2027 as part of its long-term strategy to reduce dependence on the Gulf shipping route.
According to Rystad, Saudi Arabia and the UAE currently account for roughly 65% of the oil still being produced across the region because both countries maintained exports through alternative infrastructure while maritime disruptions persisted.
Strait of Hormuz Remains Critical Risk
Despite the rapid recovery, Rystad cautioned that the pace of normalization will ultimately depend on shipping activity through the Strait of Hormuz, one of the world’s most important energy transit corridors.
Storage facilities across the Gulf are estimated to be 50% to 60% full, allowing producers to sustain exports temporarily. However, if tanker traffic does not normalize soon, producers may need to reduce output again as storage capacity tightens.
“The diplomatic agreement is a necessary first step,” Saraswat said. “Physical tanker flows through Hormuz are what we are watching now.”
The consultancy estimates total regional production outages could fall below 2 million bpd by the end of the third quarter, provided exports through Hormuz continue to recover.
Market Implications
For energy markets, the faster-than-expected supply recovery has eased concerns over prolonged disruptions that had supported higher crude prices earlier in the year. Increased production from Iran, alongside resilient exports from Saudi Arabia and the UAE, is expected to improve global supply balances over the coming months.
However, analysts warn that geopolitical uncertainty remains elevated. Any renewed disruption to shipping through the Strait of Hormuz could delay the recovery and reignite upward pressure on oil prices.
Rystad noted that the Middle East has historically recovered from major supply shocks—including the Arab oil embargo, the Iran-Iraq war and Iraq’s invasion of Kuwait—with production eventually surpassing previous highs. Whether the current recovery follows the same trajectory, the consultancy said, will largely depend on the restoration of normal maritime traffic through the Strait of Hormuz.
By Katie Keenan, Senior Communications Manager, Americas
