Market volatility ratcheted up to new heights amid geopolitical conflicts
By Linda Hsieh, Editor & Publisher
The geopolitical situation in the Middle East is evolving at a very rapid pace, so whatever short-term specifics we publish in a bi-monthly magazine like this one are likely going to be outdated by the time it gets out to our readers. However, it’s become clear that, no matter how this crisis evolves over the coming weeks and months, its impact on the global energy market will not be reversed overnight.
According to an analysis by PVM Oil Associates, it’s estimated that around 200 tankers were stranded behind the Strait of Hormuz as of mid-April. They were holding 132 million barrels of crude oil and 40 million barrels of refined products. PVM is part of TP ICAP, the world’s largest interdealer broker. “This backlog will clear in months, rather than weeks,” they stated.
Not only that, but damage to energy infrastructure in multiple Middle Eastern countries could take years and tens of billions of dollars to repair before coming back online. Many analysts have detailed the strain these supply disruptions have put on the global energy market.
In Asia, which is bearing the brunt of the oil and gas shortage, emergency measures reportedly being taken in some countries include export bans on refined products, the use of strategic reserves and an increased use of coal and other alternative energies.
Amid such acute shortage and with no end in sight, “the US has emerged as the marginal supplier of both crude oil and refined products,” the PVM analysis stated. So, what does that mean for drilling contractors in North America?
An interesting analysis by Westwood Global Energy Group, issued in early April, had noted the diverging fortunes of drilling companies in North America and the Middle East since 2019: “North America remains beholden to short-term price swings, while the Middle East, especially the core Gulf Cooperation Council (GCC) countries of Kuwait, Oman, Saudi Arabia and the UAE, are anchored by long-term contracts.”
While 2026 had been expected to extend the Middle East’s lead over North America – analysts had anticipated limited upside for oil prices and noted the conservative CAPEX budgets set by NAM operators – that outlook has shifted dramatically. While the Middle East rig market has been sharply disrupted due to the war, NAM onshore contractors have the potential to see revenue lifts as early as the second half of 2026, according to Westwood.
In fact, if there is a sustained period of elevated oil prices, “the issue for US rig contractors is likely to shift from the presence of long-idled rigs to how swiftly those units can be brought back into service,” the analysis stated.
Rystad Energy has also noted its expectation for increased oilfield service demand in the NAM onshore this year, asserting that the US will account for 30% of the additional $31 billion expected in global upstream spending. Another 9% of that spend could go to Canada. This “points to capital being redirected towards supply that can either respond quickly or proceed in markets outside the directly affected area,” Rystad stated.
But any positives in the market will be tempered. In the short term, Rystad said, “costs tied to logistics, security and supply chains may rise, operators may still face bottlenecks when trying to scale output, and some inputs used in drilling fluids, well services and cementing remain exposed to regional disruption.” Meaning, revenue may grow, but margins may not.
In the longer term, Wood Mackenzie noted that prolonged disruption to oil and gas supplies could push countries to ramp up development of coal or nuclear, leading to an accelerated erosion in oil and gas demand by 2050. Click here to read more.
These forecasts and analyses aside, only time will tell what long-lasting impacts this war will really have on the oil and gas industry, but it’s almost certain that the ride will be bumpy. DC
Linda Hsieh can be reached at linda.hsieh@iadc.org.
