World Risks Major Oil Crisis As IEA Issues New Warning – Just as analysts have warned would happen for months, the world is burning through hundreds of millions of barrels of stored oil as the Strait of Hormuz remains effectively closed – a problem that could lead to a much more serious energy crisis later this year if Iran and the United States cannot break their deadlock.
According to a warning from the International Energy Agency (IEA) this week, the global oil market is expected to run a deficit of around 1.8 million barrels per day during the third quarter of this year – more than double what it projected only a month ago.
China’s Xi Jinping. Image Credit: Creative Commons.
Xi Jinping President of the People’s Republic of China speak’s at a United Nations Office at Geneva. 18 january 2017. UN Photo / Jean-Marc Ferré
Global oil supply is expected to fall by 4.3 million barrels per day in 2026, or about 4%, as the war continues to disrupt production and trade across the Middle East.
Inventories are so far helping keep the market supplied, but those reserves are not infinite, and the longer Hormuz remains effectively closed, the greater the risk that the world will eventually run out of readily available oil to replace the missing production.
Burning Through Global Stores
The scale of global oil drawdowns is already huge.
The IEA’s latest market data show that observed global oil inventories fell by around 69 million barrels in July alone, and by around 410 million barrels since the beginning of the Iran War.
The IEA tracks commercial and government-held oil supplies across all major consuming countries and compares them with production, exports, and refinery activity to assess current supply conditions.
In its August report, the agency showed that Middle Eastern oil loadings briefly recovered to around 20 million barrels per day in the early days of July, before falling back to 12 million barrels per day later that same month. Regional production also remained around 8 million barrels per day below pre-war levels in July.
The scale of the overall disruption is also estimated by cross-referencing production and exports with the volumes that would have been expected had the war not begun. A Reuters analysis of IEA data suggested that approximately 2.6 million barrels of expected oil supply have been lost since February, equivalent to about 25 days of total global consumption.
Efforts to Mitigate Are Underway
Numerous measures are in place to mitigate the crisis’s impact, with governments drawing on strategic reserves to meet demand.
In March, all 32 IEA member countries authorized their largest coordinated emergency oil release in the agency’s history, totaling 400 million barrels.
The Buffer Is Getting Smaller
Emergency oil releases have bought the global economy time, but they cannot indefinitely replace lost Middle Eastern production – and the United States and other suppliers cannot immediately replace that supply by increasing production.
Government-controlled emergency oil supplies reportedly total around 900 million barrels, according to the latest data. The United States’s Strategic Petroleum Reserve (SPR) also fell to 298.7 million barrels and reached its lowest level since 1983 this month.
China has substantial reserves – the largest in the world, estimated to be somewhere around 1.4 billion barrels. China has begun drawing on those reserves, but more cautiously than Western countries.
Beijing has responded to the reduced supplies from the Middle East partly by cutting its crude imports and domestic consumption rather than simply replacing every lost barrel from storage – but that strategy does little to replenish Western inventories directly. Weaker Chinese demand, however, reduces competition for oil on the global market.
Iran Shows No Sign Of Backing Down
The global drawdown makes the standoff over the future governance of Hormuz and the conditions of a deal between the United States and Iran extremely consequential.
Iran says that it will not fully reopen the Strait of Hormuz unless Washington makes major concessions, including lifting sanctions and ending its naval blockade. Tehran is also demanding that the U.S. release frozen Iranian assets and withdraw U.S. forces from around Iran, among a number of other conditions with which U.S. President Donald Trump is obviously hesitant to comply.
Tehran also seems to believe that time is on its side, with Mohammad Reza Naqdi, a senior adviser to the Islamic Revolutionary Guard Corps, telling the media this week that Iran could deliberately prolong the conflict until President Trump’s term is over in 2029.
“We have to attain deterrence so that the enemy never dares to attack us so we can live with security. One way is to prolong this war until we get to the next term of the presidency and cause attrition so that if anyone else wants to attack Iran, they will know there is a cost,” Naqdi said.
Meanwhile, President Donald Trump continues his strategy of what he called “low-keying it” with Iran, waiting until the economic impact of the ongoing U.S. naval blockade on Iranian-linked ships becomes too much for the country to handle.
About the Author: Jack Buckby
Jack Buckby is a British researcher and analyst specializing in defense and national security, based in New York. His work focuses on military capability, procurement, and strategic competition, producing and editing analysis for policy and defense audiences. He brings extensive editorial experience, with a career output spanning over 1,000 articles at 19FortyFive and National Security Journal, and has previously authored books and papers on extremism and deradicalization.
