Goldman Sachs: Gulf crude oil production may largely recover within months after reopening, but tail-end recovery risks are high

Overview

Goldman Sachs studied how quickly Gulf crude oil production could recover after the reopening of the Strait of Hormuz. The report estimates that Persian Gulf crude oil production in April fell by about 14.5mb/d due to the war, mainly because of precautionary production cuts and inventory management, while public evidence of physical damage to oilfields remains relatively limited. The base conclusion is that as long as the strait can safely and fully reopen in the coming months and oil and gas assets are not hit again, Gulf production will most likely recover mostly within a few months; however, the last portion of recovery may be significantly slower, and may even fail to be fully achieved in the event of a prolonged closure or renewed hostilities.

Core views

The report has three core views. First, transportation and well flow rates are the key bottlenecks to restoring production; empty tankers, pipeline transit, destocking of already-produced crude, and the supply of materials and workers will all affect the pace of recovery. Second, core OPEC producers such as Saudi Arabia and the UAE have some spare capacity and market-stabilizing ability, and historical experience shows they usually gradually offset disrupted supply after supply shocks. Third, a prolonged closure would increase the complexity of well workovers, slow material replenishment, and worsen reservoir flow issues, so the final phase of recovery may take several quarters, with risks especially acute in regions such as Iran and Iraq where low-pressure reservoirs account for a larger share.

Analysis framework

The report combines estimates of lost production, changes in tanker capacity, historical flow through the Strait of Hormuz, pipeline transit capacity, differences in reservoir pressure, statements from oil service companies and executives of national oil companies, historical supply disruption cases, and forecasts from external institutions such as the EIA and IEA to conduct a scenario assessment of the Gulf crude oil restoration path. The focus of the analysis is not the earnings forecast of a single company, but rather how supply-side constraints transmit into the global crude oil market.

Methodology notes

• Supply recovery scenario analysisAssessment of the post-reopening production recovery path

  Using safe full reopening and no new attacks as the base case, the framework evaluates how transportation, wells, pipelines, and spare capacity constrain the speed of production recovery.

  This framework breaks recovery into output that can be restored in the short term and output that is difficult to restore in the tail end, emphasizing that the longer the closure lasts, the more likely workovers, material procurement, and reservoir flow issues are to slow recovery.

• Logistics bottleneck analysisOil tanker and pipeline capacity constraints

  The framework uses empty tanker capacity, historical peak transit through Hormuz, and pipeline transit capacity to judge whether incremental production can be exported in time.

  Even if oilfields are technically capable of restoring production, incremental output may still be constrained if previously produced crude must first be destocked, empty tanker availability is insufficient, or pipeline substitution capacity is limited.

• Reservoir and well engineering analysisReservoir pressure and workover complexity

  Different oilfields vary in reservoir pressure, infrastructure maturity, maintenance standards, and sanctions risk, resulting in significant differences in recovery speed.

  Low-pressure reservoirs and wells shut in for long periods may require more intervention and workover operations, so it cannot simply be assumed that opening wells will immediately restore prior flow rates.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Crude oil

  Directly related core asset

  Strengths

  Supply recovery after the strait reopens would improve physical market availability and could reduce the risk premium from supply shocks.

  Weaknesses

  The tail end of recovery is constrained by well flow rates, transport capacity, and the duration of the shutdown, so supply recovery may fall short of linear assumptions.

  Comparison

  Compared with LNG assets, the report says public evidence of physical damage to oilfields is more limited, so the base case for crude oil recovery is relatively more resilient.

  Risks

  Prolonged closure of the Strait of Hormuz, renewed hostilities, damage to reservoirs, or persistent transport bottlenecks.

• Saudi Arabia and UAE spare capacity

  Potential stabilizer

  Strengths

  Historically, the two countries have often gradually offset part of disrupted supply, and Saudi Aramco management has also said some regions can raise output within days rather than weeks.

  Weaknesses

  The deployment of spare capacity is still constrained by logistics, wellhead operations, and market policy, and does not mean all lost production can be replaced immediately.

  Comparison

  Compared with Iran and Iraq, Saudi Arabia and the UAE have stronger infrastructure and spare-capacity buffers.

  Risks

  If the conflict escalates or key infrastructure is damaged, the stabilizing role of spare capacity will weaken.

• Iran and Iraq crude oil production

  Regional supply with higher recovery risk

  Strengths

  If transportation and sanctions constraints ease, there is room to restore part of the shut-in production.

  Weaknesses

  The report notes that Iran and Iraq are estimated to have a higher share of low-pressure reservoirs than other Gulf regions, and they also face infrastructure, maintenance, and sanctions risks.

  Comparison

  Compared with Saudi Arabia and the UAE, the recovery path in the two countries may be slower and more uncertain.

  Risks

  Low reservoir pressure, workover complexity, sanctions, material shortages, and prolonged shutdowns.

• Oil tanker capacity and pipeline transit

  Logistics constraint on monetizing restored production

  Strengths

  Historical flows through the Strait of Hormuz and historical increments in pipeline transit show the system has some capacity for adjustment.

  Weaknesses

  Empty tanker capacity has already fallen by about 50%, and early inventory clearance may crowd out transport capacity for new production.

  Comparison

  Pipelines can partially substitute for transport through the strait, but their scale is limited and cannot fully cover large-scale constraints on seaborne transport.

  Risks

  Security risks in the strait, shipping delays, and higher insurance and freight costs.

Key data

• Estimated curtailed Persian Gulf crude oil production14.5mb/dEquivalent to roughly a 57% decline from pre-war levels, mainly due to precautionary measures and inventory management.
• Estimated April Gulf crude oil production under a no-war scenario25.4mb/dEstimated total in the chart, of which about 11.0mb/d was still being produced.
• Shutdown caused by publicly reported physical damage0.3mb/dMainly related to the impact on Khurais-linked capacity in Saudi Arabia, with relatively limited public evidence.
• Decline in empty tanker capacityabout 130mb, about 50%Goldman Sachs estimates that available empty tanker capacity in the Persian Gulf has fallen sharply since the war began.
• Historical peak oil flow through the Strait of Hormuz23.3mb/dCompared with the normal level of about 20mb/d, indicating some short-term upside room in transit capacity.
• Historical incremental pipeline transitabout 3.5mb/d above normalThis can ease transport constraints through the strait to some extent, but cannot fully replace seaborne transport.
• Estimated global crude oil spare capacity3.7mb/dGoldman Sachs estimate as of February 2026, mainly from Saudi Arabia, UAE, Iraq, Kuwait, and other regions.
• Externally forecast recovery ratioabout 70% in 3 months, about 88% in 6 monthsAverage forecast from external institutions such as the EIA and IEA for Persian Gulf production recovery.

Impact & implications

If the strait reopens safely, the crude oil market may gradually shift from pricing extreme supply disruption toward trading on the pace of production recovery and inventory releases, and the oil price risk premium may decline; however, because of insufficient empty tankers, the need to destock, the restoration of well flow rates, and low-pressure reservoir issues, recovery will not necessarily proceed linearly. For investors, the short-term focus should be on whether supply recovery is faster than market expectations, while the medium-term focus should be on whether the tail-end production gap, the use of OPEC spare capacity, and geopolitical risks continue to support oil price volatility.

Risks

• The longer the Strait of Hormuz remains closed, the slower production recovery will be, and the tail end of recovery could take several quarters.
• If oil and gas assets are attacked again, it could lead to more persistent damage to productive capacity.
• Insufficient empty tankers and the need to destock already-produced crude may continue to crowd out transport capacity.
• Low reservoir pressure, declining well flow rates, and workover requirements could prevent some wells from quickly restoring previous output.
• Shortages of materials, workers, and oilfield service capacity could slow on-site operations.
• Sanctions, maintenance, and infrastructure risks in regions such as Iran and Iraq could amplify country-level differences in recovery.

What to watch

• Whether the Strait of Hormuz achieves a safe and complete reopening.
• Whether there are new attacks on oilfields, pipelines, pumping stations, or ports.
• The number of empty tankers in the Persian Gulf and the pace of destocking already loaded tankers.
• Production restoration guidance and actual output from national oil companies in Saudi Arabia, the UAE, Kuwait, and other countries.
• Updates from institutions such as the EIA and IEA on Gulf production recovery ratios.
• Repair progress at damaged facilities such as Khurais.
• Recovery in well flow rates and workover needs in low-pressure reservoir areas of Iran and Iraq.