Shell Peer TotalEnergies Lowers Middle East War Production Impact

What happened

TotalEnergies revised downward its expected production loss from the Middle East conflict for the second quarter to around 210,000 barrels of oil equivalent per day, well below its previous estimate of 360,000 boe/d. The improvement stemmed from the ramp-up of production in offshore United Arab Emirates during the quarter and the restart of operations in other regional countries in June. However, the company noted that a significant portion of this production could not be shipped due to ongoing conflict disruptions. Despite these challenges, TotalEnergies expects second-quarter hydrocarbon production to reach nearly 2.4 million boe/d, representing 4% organic growth in line with quarterly guidance. The company also anticipates a working capital decrease of between $1 billion and $1.5 billion during the quarter, mainly due to lower hydrocarbon prices at period-end affecting inventory values.

Why it matters

For Shell and other major energy producers operating in the Middle East, TotalEnergies' updated figures provide insight into how the industry is adapting to conflict-related disruptions. The reduced production impact suggests that energy companies have been able to restore some operations despite ongoing tensions, though logistical challenges around shipping and lifting crude remain significant. TotalEnergies expects downstream results and cash flow to increase sharply from the first quarter, supported by higher refining and petrochemical margins as well as strong oil trading results-trends that Shell and BP have also flagged in recent updates. However, the sharp expected decline in integrated LNG performance, driven by underperforming gas trading activities amid flat to declining European demand, highlights sector-wide pressures in the natural gas market. The conflict's impact on energy flows, particularly through the Strait of Hormuz where around 20% of global oil supply transits, continues to create price volatility and supply uncertainty across the industry.

Bigger picture

The Middle East conflict has disrupted global energy markets since early in the year, sending oil prices soaring as hostilities choked key supply routes. While a fragile ceasefire between the U.S. and Iran offered brief respite, intermittent attacks and flaring tensions have kept Brent crude futures elevated. Major energy companies including Shell, BP, and TotalEnergies have all reported lost production volumes due to the conflict, though they have also benefited from higher commodity prices and stronger trading results. The ability of producers to gradually restore output in the region, as demonstrated by TotalEnergies' improved production figures, suggests some operational resilience, but significant portions of production remain unliftable due to shipping disruptions. Meanwhile, the divergence between strong downstream refining and trading performance and weakening LNG results reflects broader market dynamics, with European gas demand remaining subdued while oil product markets have tightened. TotalEnergies remains on track to meet its full-year net investment guidance of $15 billion, indicating confidence in its capital deployment strategy despite regional volatility.

What to watch

Investors should monitor how the Middle East conflict continues to affect regional production levels and whether TotalEnergies and peers can sustain the recovery seen in June. The ability to ship and lift produced crude will be critical, as will any developments in ceasefire negotiations or further escalations that could disrupt the Strait of Hormuz. TotalEnergies' full second-quarter earnings on July 23 will provide more detail on refining margins, trading performance, and LNG results, offering clues about broader industry trends. Watch for updates on European gas demand and how it affects LNG profitability across the sector. Additionally, track whether the $1 billion to $1.5 billion working capital benefit from lower hydrocarbon prices continues into the third quarter, and whether net investments remain aligned with full-year guidance of $15 billion. Finally, observe how Shell and other majors navigate similar production, shipping, and trading dynamics in their upcoming earnings reports.