War in the Middle East: Five Upstream Implications Reshaping Global Energy Markets

2. Restart timelines are prolonged and uncertain

Restarting upstream production is a multi‑stage process rather than a single event. S&P Global outlined three overlapping phases—logistics restart, inventory drawdown and production restart—that must occur before meaningful volumes return to market.

The complexity is amplified by the maturity of Middle Eastern fields. Nearly 90% rely on water or gas injection to maintain reservoir pressure, meaning extended shut‑ins disrupt injection cycles and require phased restarts. Under relatively orderly assumptions, S&P Global estimates it could take around four months for roughly 80% of February 2026 production to return, with full recovery extending beyond that timeframe. 

3. Demand curtailment is already balancing the market

With limited spare supply and shrinking buffers, adjustment is increasingly occurring through demand curtailment. S&P Global Energy analysis shows cumulative global liquids supply losses rising from March through at least August 2026, quickly exceeding available commercial and strategic inventories.

Higher prices are already forcing consumption cuts, particularly in price‑sensitive regions. Asia‑Pacific is most exposed due to its reliance on Middle Eastern crude and LNG, while Europe faces added pressure from imported gas and power costs. If disruptions persist, demand curtailment is expected to intensify. 

4. Cost inflation is emerging as a second‑order shock

Beyond supply losses, the conflict is reshaping upstream economics. Prior to the war, S&P Global Energy expected upstream cost escalation of 2%–3% in 2026. That outlook has shifted to 4%–6% under a short‑conflict scenario, and 10%–15% if hostilities are prolonged.

Repair and reconstruction costs across the Middle East are estimated at $68 billion, while manufacturing capacity for critical equipment—such as turbines, compressors and heat exchangers—is concentrated in Asia‑Pacific and Europe, regions most exposed to higher energy prices. Long lead times, often exceeding 24 months, suggest cost pressures are likely to persist even after hostilities ease. 

5. Portfolio exposure and M&A behaviour are diverging

The conflict has highlighted sharp differences in upstream portfolio resilience. Asian E&Ps and NOCs face elevated risk due to high Middle East exposure and import dependence, while global integrated companies show varying vulnerability depending on asset mix and geography. Companies with limited Middle East exposure have generally outperformed since the onset of the conflict.

In upstream M&A, heightened geopolitical risk is driving a flight to perceived safer regions, particularly the Americas. Deal flow remains constrained, valuation gaps have widened, and contingent payment structures are increasingly used to manage uncertainty. Even if the conflict concludes in the near term, S&P Global Energy expects upstream M&A activity to remain subdued through 2026. 

How S&P Global Capital IQ Pro Supports Upstream Risk Analysis

Assessing these dynamics requires integrated visibility across supply, costs, company exposure and transactions. S&P Global Capital IQ Pro combines S&P Global Energy upstream insights with company research, cost benchmarks and M&A analytics, helping market participants evaluate disruption scenarios and portfolio risk using a consistent, data‑driven framework.

Watch the full webinar replay to explore the analysis in detail.

Key questions on upstream risk and recovery

How much upstream production has been affected by the Middle East conflict?
Approximately 14 million barrels per day of crude and condensate production has been impacted, according to S&P Global analysis, primarily due to export constraints linked to disruption at the Strait of Hormuz rather than widespread physical damage to fields. Reduced vessel transits and limited storage availability forced production shut‑ins in several Gulf countries, including early curtailments in Iraq and Kuwait.

Why has disruption at the Strait of Hormuz had such a significant upstream impact?
The Strait of Hormuz is the primary export route for crude oil, condensate and LNG from several Middle Eastern producers, leaving limited alternatives when vessel movements are disrupted. As daily transits fell sharply from February 2026 levels, upstream production was curtailed due to storage constraints and the inability to move volumes to market.

Why are upstream restart timelines expected to be prolonged?
Restarting upstream production requires more than reopening shipping lanes, as many Middle Eastern fields are mature and rely on continuous water or gas injection to maintain reservoir pressure. Extended shut‑ins disrupt these systems, requiring phased restarts alongside improvements in logistics, shipping reliability and insurance availability

What is the base‑case outlook for upstream supply recovery in 2026?
Under S&P Global Energy’s base assumptions, production restarts gradually from mid‑year, with around 80% of February 2026 production potentially returning after several months in relatively orderly scenarios. Flows are unlikely to fully return to pre‑war levels within 2026 given restart complexity and ongoing uncertainty.

How significant is upstream cost inflation risk?
Upstream cost inflation could reach 4%–6% in a short‑conflict scenario and rise to 10%–15% if hostilities are prolonged, driven by infrastructure repair demand, higher energy prices, logistics costs and long lead times for critical equipment. These pressures are expected to persist beyond the immediate conflict period.

What impact is the conflict having on upstream M&A activity?
Heightened geopolitical risk has contributed to subdued upstream M&A activity, with deal flow shifting toward regions perceived as lower risk, particularly the Americas. Valuation gaps have widened, and contingent payment structures are increasingly used to manage uncertainty, with activity expected to remain constrained through 2026.