Crude Oil Prices Surge as Middle Eastern Supply Tightens

A tightening of crude supply from Iran and Russia has fueled a rally in the prices of crude from the Middle East. In particular, the prices of certain grades have surged to rare premiums over the global benchmark, Brent. Among them, the Murban crude futures from the United Arab Emirates (UAE) have outperformed Brent in the past two months, as demand for Middle Eastern oil, particularly from China and India, has risen sharply.

The Oman and Dubai crude benchmarks have also seen a rare jump in premiums over Brent in recent weeks, spurred by increasing demand as both China and India—key buyers of Iranian and Russian crude—have sought alternatives due to diminished supply from these countries.

Iran’s oil exports are facing heightened pressure as a result of U.S. sanctions. Iran’s crude oil is increasingly being stored offshore Southeast Asia rather than being delivered to buyers. This is a consequence of a series of sanctions imposed by the U.S. on vessels transporting Iranian oil. In October, the U.S. escalated sanctions targeting entities and vessels involved in the trade of Iranian petroleum, including those from countries like India, China, and Malaysia. These measures have led to a more cautious approach from Chinese buyers, resulting in a shift in the oil market dynamics.

National Security Advisor Jake Sullivan highlighted the U.S. efforts to target the "Ghost Fleet" that has been transporting Iranian oil globally. This has exacerbated the reduction in Iranian oil supplies, pushing the market towards Middle Eastern alternatives.

Russia has also seen a significant drop in crude oil exports. Sanctions on Russia’s "shadow fleet" of tankers and its obligation to adhere to OPEC+ quotas have further constricted Russian shipments. Consequently, Saudi Arabia has reclaimed market share in Asia, with its exports rising, while Russian crude sales in the region have dwindled. China and India, two key markets for Russian oil, have reduced their purchases, further intensifying the tightness in the oil market.

Meanwhile, Iraq’s West Qurna 1 oilfield, one of the world’s largest, continues to play a critical role in global crude production. After China National Petroleum Corporation (CNPC) took over operations from ExxonMobil in 2024, the field’s production has increased to 550,000 barrels per day (bpd), and further expansion is on the horizon. By 2035, the field's capacity is expected to reach 1.2 million bpd. The expansion is expected to help stabilize global oil supplies amid the ongoing disruptions from Iran and Russia.

With reserves estimated at over 20 billion barrels, West Qurna 1 holds a significant portion of the estimated 43 billion barrels recoverable from the entire supergiant West Qurna field. By 2028, production capacity at West Qurna 1 is expected to hit 800,000 bpd, and by 2030, it will reach 1 million bpd.

As global crude supplies tighten due to sanctions on Iran and Russia, the Middle East's role in oil production has never been more vital. The demand for oil from the region is expected to remain strong, especially from key buyers in Asia, further driving up prices. With projects like West Qurna 1 continuing to expand, the Middle East is poised to maintain its dominant position in the global oil market.