Middle East oil supply to recover by end 2026 as sanctions easing accelerates output, Rystad says

By Rara Suratmi

Middle East oil production is expected to return to pre conflict levels by the end of 2026, three months earlier than previously forecast, as easing geopolitical tensions and the temporary lifting of US sanctions on Iran accelerate the recovery of regional supply, Rystad Energy said.

The energy consultancy said shut in 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, following a preliminary agreement between the United States and Iran on June 17 and Washington's decision to suspend sanctions on Iranian oil exports for 60 days.

Rystad now expects regional supply outages to fall below 2 million bpd by the end of the third quarter, with production returning to pre conflict levels by December 2026.

"Two million barrels a day came back online in three weeks, and the recovery is spread across the region," said Aditya Saraswat, Rystad Energy's MENA Research Director.

He said Iran is recovering the fastest because production disruptions were relatively brief and upstream infrastructure sustained limited damage, while Kuwait has lifted force majeure notices and Saudi Arabia is on track to export a record 4.5 million bpd through its Yanbu terminal this month.

Rystad estimates Iranian crude production will increase from 2.4 million bpd currently to 3.1 million bpd by August. If sanctions relief is extended beyond August, output could reach 3.3 million bpd by the end of the year, exceeding pre conflict production levels.

Saudi Arabia and the United Arab Emirates are also positioned to increase output. Saudi Arabia maintained exports during the conflict through its East West pipeline, while ADNOC is expanding the Habshan Fujairah pipeline to increase bypass capacity to 3.3 million bpd by around 2027.

Despite the faster recovery, Rystad said the pace of normalization will depend on tanker traffic through the Strait of Hormuz. Storage tanks across the Gulf are estimated to be 50% to 60% full after producers drew on inventories to maintain exports during the disruption.

"If tanker traffic through Hormuz does not normalize in the near term, countries will need to constrain production again and the full recovery moves into next year," Saraswat said.

Brent crude was trading at around US$73 per barrel on Thursday, near its lowest level in three months, as the market priced in the faster than expected recovery in Middle East oil supply.

Editing by Alexander Ginting