Rystad Energy has sharply upgraded its outlook for Middle East oil production, bringing forward its forecast for a full regional supply recovery by three months to the end of 2026 as the diplomatic process and a US sanctions waiver accelerate output restarts across the Gulf.
The energy consultancy said shut-in production across the region has fallen to 9.6 million barrels per day in mid-June, down from 11.7 million bpd just three weeks earlier. The rapid improvement follows a preliminary US-Iran agreement signed on 17 June and Washington’s decision to suspend Iranian oil sanctions for 60 days.
Recovery driven by Riyadh and Abu Dhabi
The rebound is uneven but concentrated in the two largest Gulf producers. Saudi Arabia and the UAE together account for roughly 65% of current regional output and both maintained exports throughout the conflict via pipeline bypass routes, keeping their production systems largely intact.
Saudi Arabia’s East-West pipeline, with a capacity of 7 million bpd, became the most critical piece of export infrastructure during the crisis. Shipments through Yanbu climbed from under 1 million bpd before the conflict to a projected record 4.5 million bpd in mid-June, while the kingdom’s oil revenues hit a near four-year high in March as elevated prices offset lower Gulf coast volumes.
Iran sees sharpest rebound
Iran is posting the fastest production increase in the region. Rystad estimates Iranian output will rise from 2.4 million bpd currently to 3.1 million bpd by August. If sanctions relief holds past that date, output could reach 3.3 million bpd by year-end, exceeding pre-conflict levels for the first time.
The US Treasury’s June 22 General License suspending sanctions on Iranian oil sales through 21 August restored dollar-denominated transactions and opened the door for tanker traffic to build. Japanese refiners have been in active talks with the National Iranian Oil Company about resuming crude imports for the first time since 2019.
However, analysts caution that Iranian fields carry high natural decline rates and the country has relied on domestic contractors since international firms exited in 2018. Sustaining output growth beyond the initial rebound will require capital and technology that Tehran currently lacks.
Hormuz transit is the critical variable
Kuwait and Iraq remain the slowest to recover, as both depend almost entirely on the Strait of Hormuz for exports and operate heavier, mature reservoirs that take longer to restart. Rystad warned that if tanker traffic through the strait does not normalise soon, producers will be forced to constrain output again and the recovery timeline reverts to a slower 2027 completion.
Gulf onshore storage tanks are currently 50% to 60% full, providing a limited buffer. ADNOC is expanding its Habshan-Fujairah pipeline to increase bypass capacity from 1.8 million bpd to 3.3 million bpd by around 2027, while the UAE, now outside OPEC quota limits, is targeting 5 million bpd of capacity next year.
Sources: Rystad Energy; AJOT; Aletihad; Petromindo
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