Al-Wazan to 'Al-Nahar': Barrel Value Matters More Than Volume!
Tarik Al-Jarwan, a researcher in oil and economic affairs, stated that Kuwait’s flows through the Strait of Hormuz in 2025 amounted to approximately 1.4 million barrels per day of crude oil and Kuwaiti condensates, in addition to about 970,000 barrels per day of petroleum products, bringing total Kuwaiti flows through the strait to roughly 2.37 million barrels per day. Al-Jarwan explained to Al-Nahar that not all barrels are equal in economic value; of the Kuwaiti flows through Hormuz in 2025, approximately 970,000 barrels per day consisted of refined petroleum products. Following substantial investments in refining, protecting this value becomes part of safeguarding the return on those investments. He noted that the longer the crisis persists, the greater the incentives to build new relationships and supply routes, and some temporary solutions may endure beyond the crisis itself. He emphasized that supply reliability is becoming a future commercial asset, as buyers do not purchase only price and quality, but also the ability to deliver when markets are under pressure.
He added that export capacity becomes constrained during a crisis; the optimal decision may not be to protect the largest number of barrels, but rather to protect the highest value and the highest possible margin from available capacity. He pointed out that increasing storage near major markets may be more efficient, or establishing long-term arrangements for storage and delivery, enhancing flexibility in shipping and insurance, or utilizing regional networks. Ultimately, economic calculations may justify new infrastructure.
Al-Jarwan reported that the CEO of the Kuwait Petroleum Corporation confirmed discussions with Saudi Arabia and the United Arab Emirates regarding the possibility of expanding pipeline networks to accommodate Kuwaiti barrels. Saudi Arabia is exploring increasing the capacity of its pipeline to the Red Sea. However, the existence of a technical option does not automatically make it the most economically advantageous choice. Increasing storage near major markets may be more efficient, or long-term storage and delivery arrangements, greater flexibility in shipping and insurance, or the use of regional networks may be preferable. In the end, economic calculations may justify new infrastructure.
Further details of the dialogue:
- How can it be ensured that oil value translates into revenue when market access becomes less certain?
Oil markets have traditionally measured the impact of geopolitical crises through price movements and supply disruptions, with risk premiums rising. At first glance, producers appear to benefit from higher barrel prices. However, the Hormuz Strait crisis revealed the limits of this equation. For an exporting country like Kuwait, price alone does not generate revenue; barrels must be shippable, deliverable, and collectible. Oil prices may rise while a producer’s ability to access the market declines. Conversely, as the crisis subsides, the opposite may occur: export capacity improves, but prices fall as supplies return and risk premiums decrease. This paradox shifts the discussion from oil production security to a broader concept: oil revenue security.
According to estimates by the International Energy Agency, approximately 1.4 million barrels per day of Kuwaiti crude and condensates, along with about 970,000 barrels per day of petroleum products, passed through the Strait of Hormuz in 2025. Thus, roughly 2.37 million barrels per day of Kuwaiti flows through the strait were linked to this corridor. This figure reflects 2025 flows and does not necessarily represent Kuwait’s current production or exports.
- How does the oil-related problem shift from logistical to economic?
- It is certain that the figure measures exposure, not loss, since a barrel that does not leave today can be stored and sold tomorrow, and a delayed shipment is not necessarily a lost revenue. Therefore, a distinction must be drawn between deferred revenue, lost revenue, and additional costs arising from storage, shipping, insurance, and operational disruptions. The problem shifts from logistical to economic when volumes accumulate and storage capacity tightens, making production cuts or refinery operations essential. Here arises the most critical question: How long can Kuwait sustain itself if a large portion of its exports is disrupted before it is actually forced to cut production or refine? Undoubtedly, the risk lies not in the volume of disruption alone; an economy lasting two weeks differs economically from one lasting three or six months, even if the percentage of affected exports is similar. Initially, part of the impact can be absorbed through storage and rescheduling shipments. Over time, transportation and insurance costs rise, and pressure on storage, refineries, and production increases. If the crisis prolongs, buyers begin testing alternative crudes and supply routes, and temporary solutions may evolve into more permanent arrangements. The magnitude of disruption determines the shock, but its duration determines how much it transforms into economic loss. Therefore, testing the resilience of the Kuwaiti system for 30, 90, and 180 days may be more useful than basing policy on a single scenario of Hormuz closure.
- How can Kuwait’s flows through Hormuz and the budget price be calculated?
- Kuwait’s budget for the fiscal year 2026/2027 estimates oil revenues at approximately 12.8 billion dinars, with a budget oil price assumption of $57 per barrel. Using Kuwait’s flows through Hormuz in 2025 and the budget price as a sensitivity test, a disruption of half those flows for 90 days places approximately 1.9 billion dinars of the total shipment value under pressure from delays or rescheduling.
- But does this mean a loss of 1.9 billion dinars?
- The most important economic figure is the portion that cannot be recovered later, after accounting for storage, sales rescheduling, price changes, transportation and insurance costs, and any actual production cuts or refinery operations. This is the revenue actually at risk, which should be compared to the cost of investing in flexibility. Not all barrels are equal in economic value. Of Kuwait’s flows through Hormuz in 2025, approximately 970,000 barrels per day were refined petroleum products. After significant refining investments, protecting this value becomes part of protecting the return on those investments. Therefore, if export capacity becomes constrained during a crisis, the optimal decision may not be to protect the largest number of barrels, but rather to protect the highest possible value and margin from available capacity. This means shifting from protecting volume to protecting value.
- What if the customer finds an alternative?
- Approximately four-fifths of the oil passing through Hormuz in 2025 was destined for Asia. The less certain the supply, the stronger the incentive for importers to seek alternative sources. However, not every Kuwaiti barrel is easily replaceable. Crude quality, refinery design, existing contracts, and transportation costs determine the customer’s ability to switch to another supplier. Therefore, the more precise question is not: Will Kuwait lose its market share? But rather: What portion of its sales can a customer economically replace if the disruption lasts 30, 90, or 180 days? The longer the crisis, the greater the incentives to establish new relationships and supply routes, and some temporary solutions may persist beyond their intended duration. Here, supply reliability becomes a commercial asset.
Clients do not purchase price and quality alone; they also purchase the ability to deliver when markets are under pressure. - When Hormuz reaches the budget. - The impact does not end at the oil sector. The 2026/2027 budget projects total revenues of approximately 16.3 billion dinars against expenditures of about 26.1 billion dinars, while oil revenues amount to roughly 12.8 billion dinars. This means that disruptions in oil flows can affect revenue timing, liquidity management, and public financing needs. - How might the situation unfold? - The economic chain in this scenario becomes: Energy Security ? Revenue Security ? Fiscal Flexibility. This does not imply that a Hormuz disruption automatically threatens Kuwait’s financial position, but it does mean that reducing oil revenue volatility has measurable economic value. - What is the cost of lacking an alternative? - Here, the discussion should not begin with a pipeline or a new project. The correct question is: What is the cost of lacking flexibility, and how much should Kuwait be willing to pay to reduce this cost? This question is no longer entirely theoretical. The CEO of the Kuwait Petroleum Corporation has confirmed discussions with Saudi Arabia and the UAE regarding the possibility of expanding pipeline networks to accommodate Kuwaiti barrels, while Saudi Arabia is exploring increasing the capacity of its pipeline to the Red Sea. - However, the existence of a technical option does not automatically make it the best economic choice. - Increased storage near major markets may be more efficient, or long-term arrangements for inventory and delivery, greater flexibility in shipping and insurance, or the use of regional networks. Calculations may ultimately justify new infrastructure. Most likely, optimal flexibility comes from a mix of tools that differ in cost, implementation speed, and ability to protect revenue. Here, the traditional question should be reversed. Instead of asking only: What is the cost of building an alternative? We should also ask: What is the cost to us of not having it when a crisis occurs? The economic criterion is clear: the cost of flexibility versus avoidable losses, and the revenue, margin, market share, and liquidity that can be protected. If the economic value of protection exceeds its cost, flexibility becomes a defensible investment. This brings the discussion to the most important question: - Should Kuwait measure its oil security by what it can produce, or by what it can actually convert into revenue when the export system is under pressure? - For years, the fundamental question in Kuwaiti oil policy was: How much can Kuwait produce? Then, with the expansion of refining and petrochemicals, the question became: How to increase the economic value of each barrel? Hormuz adds a third question: How much of this value can Kuwait convert into revenue and protect when market access becomes less certain? The answer does not start with a new project, but with two more fundamental questions: What is the minimum level of oil revenue that Kuwait must be able to protect under any circumstance? - Where would the first bottleneck occur if the disruption persists: in storage, refining, production, or market access? - From this, the duration until the bottleneck can be measured, along with the revenue, margin, and market share at risk, allowing the cost of alternatives to be compared with the value they can protect. The goal is not to eliminate Hormuz risks; this is unrealistic. The goal is to reach the optimal economic level of flexibility. Reserves give Kuwait wealth, production converts it into barrels, and refining increases its value. But this value only becomes revenue when the product reaches the client and its value is collected.
Thus, the next phase of Kuwait’s oil policy may involve not only maximizing the value of the barrel, but also building revenue reliability around it: determining the amount of value at risk, and then protecting the portion whose protective value exceeds its cost.
