Oil production shut-ins and shipping disruptions signal higher energy costs for producers worldwide.
Escalating conflict in the Middle East is tightening global energy markets, pushing oil prices higher and raising fuel cost concerns for the agricultural sector says the United States Energy Information Administration (EIA).
As most people are aware, disruptions to shipping through the Strait of Hormuz, one of the world’s most critical energy corridors, have forced major oil‑producing nations to shut in millions of barrels of crude oil production, significantly affecting global supply.
The Strait of Hormuz serves as a vital link between Middle Eastern oil producers and international markets. Ongoing restrictions on traffic through the waterway have sharply reduced export capacity, causing oil storage facilities in exporting countries to fill rapidly. As a result, Iraq, Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, and Bahrain collectively shut in an estimated 7.5 million barrels per day of crude oil production in March.
Production curtailments are expected to deepen in April according to EIA, rising to an estimated 9.1 million barrels per day as storage constraints intensify and shipping delays persist.
Current forecasts assume the conflict does not extend beyond April and that maritime traffic through the Strait of Hormuz gradually resumes. Under those assumptions, production shut‑ins are expected to ease to approximately 6.7 million barrels per day in May, with output returning close to pre‑conflict levels by late 2026.
Crude Oil Prices Remain Elevated
Global oil prices have responded swiftly to the supply disruption. Brent crude oil averaged $103 per barrel in March, reflecting heightened geopolitical risk and constrained exports. Prices are projected to continue climbing, peaking at approximately $115 per barrel in the second quarter of 2026 before gradually easing as production recovers.
Despite the anticipated recovery, analysts expect a sustained risk premium to remain embedded in crude oil prices throughout the forecast period. Ongoing uncertainty surrounding future supply disruptions is expected to keep prices above pre‑conflict levels for an extended period. Brent crude prices are forecast to fall below $90 per barrel in the fourth quarter of 2026 and average $76 per barrel in 2027, although these projections remain highly dependent on conflict duration and regional stability.
Widening Brent‑WTI Price Gap
EIA also says the supply shock has also widened the spread between international Brent crude and U.S. benchmark West Texas Intermediate crude. The Brent‑WTI spread averaged $12 per barrel in March, driven by higher shipping costs and reduced oil flows from the Middle East to major consuming markets in Asia.
The spread is expected to peak at approximately $15 per barrel in April, coinciding with the highest level of production disruptions. As shipping through the Strait of Hormuz resumes and global oil flows normalize, the Brent‑WTI spread is projected to gradually narrow.
Rising Fuel Costs Impact Agriculture
Higher crude oil prices are translating directly into elevated retail gasoline and diesel prices. Diesel prices remain particularly high due to tight global supplies and U.S. inventories that remain below the five‑year average.
Retail gasoline prices are forecast to peak at a monthly average near $4.30 per gallon in April and average more than $3.70 per gallon for the year. Diesel prices are projected to exceed $5.80 per gallon in April and average approximately $4.80 per gallon in 2026.
For farmers, higher diesel prices increase operating costs across planting, harvest, grain drying, and transportation. Fuel expenses represent a significant portion of farm input costs, especially during peak planting season.
Natural Gas and LNG Markets Tighten
Disruptions in the Strait of Hormuz have also reduced liquefied natural gas exports, tightening global LNG supply and widening the price gap between U.S. natural gas and European and Asian import markets. U.S. LNG export facilities are operating near peak capacity, exporting nearly 18 billion cubic feet per day of natural gas in March, close to record levels.
With export capacity fully utilized, only limited flexibility exists to increase shipments. Any additional exports depend on deferred maintenance schedules, new project ramp‑ups, and recent export authorization agreements.
Despite strong export demand, natural gas inventories ended the 2025–2026 withdrawal season slightly above the five‑year average. Continued production growth and limited export expansion are expected to push storage levels to more than 4,000 billion cubic feet by October, easing domestic supply pressures.
Rising energy costs driven by global supply disruptions highlight the increasing interconnectedness of geopolitics, energy markets, and agriculture. For producers, fuel price volatility reinforces the importance of cost management strategies as global uncertainty continues to shape input markets.
Image: EAI