KUWAIT CITY, Sept 29: On September 5, 2023, Kuwait, alongside seven other member countries, agreed to extend an additional voluntary production cut of 2.2 million barrels per day until the end of November 2024. This extension showcased Kuwait’s steadfast commitment to OPEC+ production adjustments and underscored the critical role such measures play in maintaining the stability and balance of global oil markets.

As Kuwait pressed forward with its ambitious “New Kuwait 2035” vision, including calculated expansions in its oil fields, there was a sense of optimism surrounding the future of the nation’s oil and gas sector. However, lurking in the background were scenarios that could upend this promising trajectory. KPMG Economics took a closer look at these potential scenarios in a study titled “Examining and Analyzing the Oil Price Shock.” They hypothesized a typical three-month oil price shock beginning in the second quarter of the year. Their findings illuminated several significant factors that could lead to skyrocketing oil prices.

One major concern was the turmoil in the Strait of Hormuz, a narrow but crucial waterway through which about 20 percent of the world’s oil and liquefied natural gas supplies flow each year. With a minimum width of just 34 kilometers between its banks, any disruptions in this chokepoint would dramatically affect oil prices.

According to KPMG’s sources in the oil sector, if conflict were to arise here, oil prices could soar from around $85 per barrel to between $130 and $150, igniting heightened tensions in the already volatile Middle East. Even the United States, with its considerable resources and expertise, might struggle to mitigate the fallout from such an event, particularly as geopolitical concerns further complicate oil supply dynamics. In addition to geopolitical risks, OPEC+ was grappling with internal compliance issues. Although the organization had begun implementing its agreement to reduce oil production by 2-3 percent of global demand in 2022, compliance among member states remained uneven. Saudi Arabia, the de facto leader, welcomed higher oil prices, yet gaps in compliance undermined the intended impact of the production cuts, contributing to ongoing price volatility instead of stability.

Compounding these challenges was the slow adoption of renewable energy sources. A lack of supportive legislation and regulations worldwide hampered efforts to promote environmentally friendly energy alternatives. As startups sought innovative methods for energy storage and even tech giants explored the construction of their nuclear plants, the pressure to secure reliable energy sources grew.

However, the increasing energy demands of emerging technologies, particularly generative AI, complicated this landscape further. The KPMG highlighted that the rising interest rates intended to combat post-pandemic inflation, along with new labor and local content laws in the US, could stifle the expansion of renewable energy initiatives, despite global efforts to encourage adoption. In conclusion, KPMG Economics argued that any rise in oil prices could be fleeting. A global reaction might follow, with oil-producing nations outside the Middle East ramping up production in response to higher prices