The continuing conflict in West Asia, which has led to the closure of the Strait of Hormuz, is expected to cut the supply of Middle Eastern crude oil by almost half, with monthly output likely to average around 10 million-16 million barrels per day (b/d) through 2027.
According to an S&P Global report, Middle Eastern crude supply stood at around 20 million b/d before the war in January-February 2026.
Production capacity has not been permanently lost, but security and logistical challenges are limiting the amount of oil that can reach the market, the analysis said.
The report noted that with prospects for a definitive resolution to the Iran conflict dimmed and Brent crude prices recently topping $100 a barrel for the first time since July, crude oil markets are settling into a prolonged new normal where disruption risk is persistent rather than episodic.
“Gulf producers have strong incentives to find ways to move more oil to market, and they can be expected to adapt around political and security constraints as much as possible.
“However, the market is not returning to calm, it is adjusting to the new normal defined by unresolved conflict and persistent Maritime risk – one where oil flows stay below prewar levels and the path forward remains uneven.” – Jim Burkhard, Vice President and Global Head of Crude Oil Research, S&P Global Energy
For the first time since the US-Iran war started, S&P Global Energy does not project Middle Eastern crude oil production to return to prewar levels by the end of 2027. The outlook does not assume a definitive end to the US-Iran conflict, a normalisation of Hormuz or the disappearance of Red Sea disruption risks from Iran’s Houthi allies during that period.
Meanwhile, sustained crude oil prices above $100 a barrel could put pressure on the margins of Indian oil marketing companies if petrol, diesel and LPG prices remain unchanged, with state-run Hindustan Petroleum Corporation (HPCL) emerging as the most vulnerable among major OMCs, according to Equirus Securities.
Among the major OMCs, HPCL is the most vulnerable because its refining-to-marketing ratio is only 51%, compared with 74% for BPCL and 80% for IOCL. Consequently, it has the lowest internal refining cover and the greatest dependence on purchased and imported products.
HPCL’s distillate yield is also lower at 76%, compared with 80% for IOCL and 85% for BPCL, limiting its ability to fully benefit from strong diesel and jet-fuel cracks. This also weighs on its balance sheet, with HPCL having the highest leverage among the three.
IOCL ranks second because its stronger integration provides a refining buffer. However, its absolute exposure to fuel marketing, LPG under-recoveries, inventory, working capital and expensive crude procurement remains substantial, along with petrochemical losses.
BPCL is relatively better placed because of better integration, its highest distillate yield, Bina’s crude flexibility and a comparatively stronger balance sheet.
Among gas-linked companies, city gas distributors (CGDs) face near-term margin risks from rising spot LNG prices and crude-linked LNG contracts. However, CGD volumes remain relatively resilient, with sector consumption increasing to 55.2 mmscmd in FY27TD from 45.3 mmscmd in FY26, although the imported component has also risen sharply.
Gujarat Gas is exposed to higher Brent-linked spot LNG prices and rupee depreciation, partly offset by gas-trading profits. MGL is better cushioned through Henry Hub-linked sourcing and pricing action, although margins remain volatile in the near term.
Petronet LNG is more exposed to LNG affordability and regasification volumes. Qatar normalisation, tariff visibility and petrochemical capex remain key watchpoints.
GAIL is relatively defensive because transmission earnings provide a buffer, while petrochemical and gas-marketing profitability improve due to higher realisations.
