Shockwaves From U.S. Counter-Blockade: OPEC Oil Output Sees Biggest Drop Since COVID-19

OPEC’s Daily Oil Output Drops to 20.8 Million Barrels in March
Down 27% from Previous Month... Largest Decline Since COVID-19
Aviation, Petrochemicals, and Manufacturing Industries Hit Across the Board

Hormuz Strait. Reuters Yonhap News

The war in Iran and the U.S.-led maritime blockade have caused a rapid contraction of energy supplies from the Middle East, sending shockwaves throughout the global economy. The Organization of the Petroleum Exporting Countries (OPEC) saw its oil production in March drop by the largest amount since the COVID-19 pandemic, while international commodity prices surged, increasing uncertainty across global financial and industrial sectors.

According to OPEC on April 13 (local time), the organization’s member states produced 20.8 million barrels of oil per day in March. This represents a decrease of 27% (7.9 million barrels) compared to the previous month.

What stands out is that this is the largest decline since the onset of COVID-19. The previous record for the largest monthly drop before the Iran war was in May 2020, when oil production fell by 6.3 million barrels per day at the height of the pandemic.

OPEC avoided direct reference to the Iran war, instead describing it as a "geopolitical development that must be closely monitored."

The reason for OPEC's reduced oil production in March is the Iran war. After suffering attacks from the United States and Israel, Iran retaliated by targeting energy facilities in the Middle East and blocking the Hormuz Strait. As exports through the strait were restricted and storage space ran short, OPEC member countries were forced to cut production.

By country, Iraq was hit hardest. Its daily output plunged by 61% (2.6 million barrels) compared to the previous month. Over the same period, Saudi Arabia—the largest oil producer—saw its daily production drop by 23%, producing 7.8 million barrels, while the United Arab Emirates (UAE) cut output by 45%, despite rerouted exports via Fujairah Port. These countries are core producers, accounting for about 70% of OPEC's total output, and their moves have a profound impact on the global energy market.

Aviation, Petrochemicals, and Other Industries Hit Hard... Impact Spreads to Global Economy

A view of export cars parked at Pyeongtaek Port, Gyeonggi Province. Photo by Yonhap News

The maritime blockade against Iran imposed by U.S. President Donald Trump is further exacerbating disruptions to energy supplies. Earlier, President Trump announced the blockade after peace negotiations with Iran broke down. As a result, the U.S. Navy began enforcing the blockade on Iranian waters from 10 a.m. that day.

The shock is already spreading worldwide. Asiana Airlines, South Korea's second-largest carrier, announced it would cut flights on four routes due to jet fuel shortages. Japanese bathroom fixture giant Toto stopped accepting orders for prefabricated bathroom units because of a shortage of naphtha, a petrochemical product.

Ursula von der Leyen, President of the European Commission, warned that the continued closure of the Hormuz Strait is causing "major damage" to the European economy.

Blake Berger, Deputy Director of the Southeast Asia-focused think tank Verve Research, said, "These ripple effects are being felt broadly across all sectors," adding, "Whether in Singapore, Brunei, Cambodia, or Laos, the impact of the Iran war is being felt both directly and indirectly."

Even if the Iran war ends soon, high oil prices are likely to persist for an extended period. German state-owned bank KfW warned in a recent report to clients that oil prices are unlikely to return to prewar levels before the end of 2027.

Most critically, rising energy prices are fueling inflationary pressures and driving central banks in various countries to raise interest rates, which could slow global economic growth, according to The Wall Street Journal (WSJ).

UBS forecasts that if the blockade of the Hormuz Strait lasts more than two months, global growth will weaken significantly and not return to previous levels until the end of 2028. In particular, if the closure continues for a long time, global economic growth could drop by 1 percentage point, and the U.S. economy could enter a mild recession.

Experts believe that even if the current conflict ends quickly, a long-term risk premium will be attached to energy prices.

Hamzeh Al-Gawwad, an economist and Middle East expert, said, "Even if the war ends, Iran will remain a persistent 'tail risk' in the region," adding, "Companies and investors will have to take this uncertainty into account over the long term."

This content was produced with the assistance of AI translation services.