Iran War: Oil Market Disruption – IEA Report

The International Energy Agency warned that the Israeli-American war on Iran is causing unprecedented disruption in oil markets, affecting 7.5% of global supplies and a larger segment of exports.

The agency stated in its monthly report issued on Thursday: “The war in the Middle East is causing the largest disruption to oil supplies in the history of the global oil market.”

This comes a day after the agency’s member states agreed to withdraw 400 million barrels of emergency reserves, an unprecedented number, in an attempt to calm the market.

Oil prices rose after Israel and America launched attacks on Iran on February 28, which led to oil tankers stopping passage through the vital Strait of Hormuz.

Supplies decline

The International Energy Agency estimates that

• Oil flows through the strait, which saw the passage of 20 million barrels of crude oil and petroleum products last year, have fallen by more than 90%.
• The war will reduce global oil supplies by 8 million barrels per day this month.
• Sharp price hikes, flight cancellations, and economic uncertainty are all negatively impacting demand
• Estimates of global consumption growth this year are about 25% to 640,000 barrels per day, and this is the lowest level since the agency presented its expectations for this year last April.
• While Saudi Arabia and the UAE can transfer part of their exports through alternative routes, the effective closure of the Strait of Hormuz forced producers in the Gulf region to reduce their daily production by about 10 million barrels.
• This supply disruption has cut the agency’s forecast for a global surplus in 2026 by just over a third, to about 2.4 million barrels per day.
• Before the crisis, the International Energy Agency had forecast a record oil oversupply this year, as increases in supplies from across the Americas, driven by the United States, Canada, Guyana and Brazil, outpaced consumption growth.

Refining risks

The agency indicated that the decline in production in the Middle East is mitigated by rising production from producers outside the Organization of the Petroleum Exporting Countries (OPEC) and its partners, as well as increases from Kazakhstan and Russia, members of the OPEC Plus alliance.

The agency explained that the closure of the Strait of Hormuz also threatens about 4 million barrels per day of regional refining capacity, and restrictions imposed on the availability of raw materials limit the ability of other regions to compensate for this shortage, which poses special risks to the supply of diesel and jet fuel.

The Executive Director of the International Energy Agency, Fatih Birol, said on Thursday that the agency’s decision to withdraw 400 million barrels of global strategic oil reserves had already had a “strong impact” on energy markets, which are going through a “very critical period” in light of the closure of the Strait of Hormuz.

He explained, in a press conference in Istanbul, that this coordinated step taken by the agency aims to stabilize oil markets amid the continuation of the Iran war.

He refrained from answering a question about the frequency of daily withdrawals from stocks.

US Energy Secretary Chris Wright said the country would deploy 172 million barrels of this from its Strategic Petroleum Reserve, although it would take about 120 days for full delivery.