US admits US companies won’t be able to quickly replace Middle East oil

US shale companies are unable to quickly increase production to compensate for the oil shortage caused by the escalation of the conflict in the Middle East, US energy executives told the Financial Times.

Industry veteran Scott Sheffield said producers will not rush to launch expensive drilling programs until they are convinced that high oil prices are sustainable. This week, quotes rose to an 18-month high of more than $80 a barrel on fears of disruptions to supply from the Persian Gulf.

Sheffield said an additional constraint on the rapid increase in production is the lack of quality sites for drilling. Over the past 12 months, during a period of low oil prices, companies have cut costs, decommissioned some drilling rigs and laid off workers.

“This week’s price hike will provide additional cash flow. Companies will be able to reduce debt, buy back shares or pay dividends,” the expert said. He added that once the conflict ends, prices are likely to rebound quickly and a massive resumption of drilling is unlikely due to resource constraints.

The escalation of the conflict began after joint US-Israeli strikes on Iran and the assassination of Iran’s supreme leader Ayatollah Ali Khamenei. In response, Tehran is attacking the energy infrastructure of its Arab neighbors and threatening to close the Strait of Hormuz, through which about a fifth of the world’s oil supplies pass.

Some major oil fields in Iraq and giant gas export facilities in Qatar have already been suspended amid rising tensions. On Tuesday, Donald Trump said the US may escort oil tankers out of the Persian Gulf, but details of the plan remain unknown.

Overall, the situation highlights the vulnerability of the global oil market to geopolitical crises and the limited ability of the United States to quickly compensate for the deficit through domestic shale oil production.