The nearly two-week-long war in the Middle East has created the “largest supply disruption” in the history of global oil markets, the International Energy Agency said, as production from Gulf countries has been slashed and exports through the Strait of Hormuz have been halted.
The Paris-based organization made the stark assessment in its closely watched monthly oil report on Wednesday, in which it slashed its forecast for oil supply growth by more than 1 million barrels per day.
Oil prices soared again on Thursday morning, with international benchmark Brent crude up nearly 7% to above $98 a barrel.
The IEA expects the conflict in Iran to cause global oil supply to plummet by 8 million barrels per day in March, as Western nations and their allies are moving to release a record level of oil reserves to curtail the Middle Eastern disruptions.
“The war in the Middle East is creating the largest supply disruption in the history of the global oil market,” the agency said.
It also warned, “In the absence of a rapid resumption of shipping flows, supply losses are set to increase.”
The Strait of Hormuz is considered one of the most vital waterways for global oil and gas trade, with roughly 20 million barrels of crude oil and other oil products passing through the strait daily, equivalent to 20% of global oil demand.
Since the war began, traffic has dropped by roughly 97%, according to United Nations data.
The inability to move product through the waterway has strained oil and gas producers in the Gulf countries, as they quickly ran out of storage space for their supply. As a result, many, including Kuwait, Qatar, and Iraq, have started to cut their output, while others, such as Saudi Arabia, have attempted to send their product through different routes.
Overall, the region has cut production by roughly 10 million barrels per day, the IEA estimated. More than 3 million barrels per day of refining capacity has also been shuttered due to risks of attacks and the inability to export.
This major disruption to global energy trade has sent oil and gas prices soaring. Leading up to the start of the war, crude oil prices were around $70 per barrel, with Brent Crude selling at $72 and West Texas Intermediate at $67.
Prices have since surged by around 30%, hitting a record high of $119 per barrel earlier in the week.
The IEA attempted to stanch prices earlier in the week, agreeing to release a record 400 million barrels from stockpiles. The United States alone plans to release 172 million barrels from the Strategic Petroleum Reserve.
Amid these losses, the IEA is now projecting that global oil supply will rise by an average of 1.1 million barrels per day in 2026 — down from the 2.2 million barrels previously estimated.
STRAIT OF HORMUZ TRAFFIC HAS GROUND TO A HALT. HERE’S WHY IT’S VITAL TO GET IT BACK UP AND RUNNING
The agency said the joint release of stockpiles will provide a significant buffer for the markets, but, without de-escalation, it is just a “stop-gap measure.”
“The ultimate impact on oil and gas markets and the broader economy from the conflict will depend not only on the intensity of military attacks and any damage to energy assets, but also, crucially, on the duration of disruptions to shipping through the Strait of Hormuz,” the IEA said.
