Fatih Birol, Executive Director of the International Energy Agency (IEA), has expressed serious concerns about global energy security due to the escalating conflict between the United States and Iran, especially following Iran's closure of the Strait of Hormuz. He stated, "We should be worried, and I am worried, if the situation does not improve in the next few weeks," highlighting that the strait typically handles about one-fifth of the world's energy shipments. The conflict's resurgence, after an interim agreement failed, risks plunging the world into a new energy supply crisis, with the IMF warning of increased inflation, damaged supply chains, and adverse effects on financial markets.
The renewed hostilities have already pushed oil prices higher, with Brent crude surpassing $80 a barrel after having been in decline for two months. West Texas Intermediate (WTI), the U.S. benchmark, settled at $82 a barrel, while Brent closed at $88 a barrel, a significant increase from earlier in the month when it was below $70. The IEA had previously coordinated the release of up to 400 million barrels from emergency reserves in March, which temporarily lowered prices by about $20 a barrel. However, those reserves are now at their lowest levels since 1983, with only about 317 million barrels remaining as of July 10 in U.S. strategic reserves. Goldman Sachs estimates that Gulf oil exports, which had recovered to over 80 percent of pre-war levels, have halted since the fighting resumed.
Energy analysts, including Kyle Bertamini from Enverus, suggest that markets are currently underpricing the tightness in global supply. He expects crude and product stocks to continue drawing into the fourth quarter, warranting "higher-for-longer oil prices." The repeated withdrawals are straining the strategic stockpile system. The closure of the Strait of Hormuz particularly impacts Asia, which receives 80 to 90 percent of its energy from the region, severely affecting countries like Japan, South Korea, Pakistan, Bangladesh, and India.
The global reliance on oil from the Gulf region means that a prolonged disruption would necessitate curtailing demand, likely through significantly higher prices. The IEA noted that while China's substantial oil stockpile of over 1 billion barrels and its conservation efforts, along with the previous IEA coordinated release, have moderated some price increases, these "fixes can't last forever," according to Birol. He described the ongoing Iran conflict as the "worst energy disruption in history," with potential health risks for developing countries relying on alternative, less safe cooking fuels due to unaffordable petroleum products.
