The renewed escalation of the conflict in the Middle East is affecting the Strait of Hormuz and energy infrastructure in the region, heightening concerns over security of supply and creating uncertainty about the market outlook, the International Energy Agency’s Executive Director Fatih Birol said.
The International Energy Agency (IEA) is monitoring oil markets following the breakdown of the ceasefire in the Middle East, Executive Director Fatih Birol said and warned that the escalation in hostilities around key shipping routes is increasing concerns over global energy security.
The Houthi rebels in Yemen have threatened to attack vessels using Saudi ports, which disturbed the traffic of tankers carrying Saudi crude in the Red Sea.
These risks are raising concerns about shipping through the Bab el-Mandeb Strait, which has become increasingly important as a route to bypass the Strait of Hormuz.
Nevertheless, several factors are cushioning crude oil markets from the impact of the disruptions, the IEA’s chief added.
Substantial volumes from producers in the Persian Gulf region are reaching global markets via alternative routes, largely thanks to major efforts by Saudi Arabia and the United Arab Emirates, according to Birol. Some volumes are also still passing through the Strait of Hormuz.
“We estimate that Gulf exports are below their late-June highs but are still considerably higher than the levels seen between early March and mid-June”, he said.
Higher exports from other regions have offset some of the lost supplies from the Persian Gulf. Birol highlighted the roles of the United States, Brazil, Venezuela and Kazakhstan. He also noted that, on the demand side, China has played an important role in stabilising markets by almost halving its crude oil imports from pre-war levels.
No room for complacency on oil security
IEA countries are releasing oil from their emergency stocks, helping to ease market tensions. On March 11, the organisation announced an agreement to make 400 million barrels of oil available to the market. Birol said that around 290 million barrels have been released so far, with further volumes continuing to flow to the market.
The members of the agency still hold substantial emergency reserves, including more than one billion barrels of government-controlled stocks, he added.
Oil product markets under greater pressure than the crude oil market
“There is no room for complacency on oil security amid the escalation in hostilities and a continued drawdown of available commercial inventories. Refinery activity and product supplies have not picked up as much as crude deliveries, meaning that markets for refined oil products, including diesel and gasoline, are considerably tighter than those for crude”, Birol said.
Increased liquefied natural gas (LNG) flows, led by the United States and Canada, have offset around 70% of the supplies lost through the Strait of Hormuz.
“But further delays in resuming Gulf exports risk keeping markets tighter for longer. This will be felt by all LNG importers, including Europe as it looks to refill its gas storage for next winter,” the IEA’s executive director warned.
The organisation maintains that a resolution to the ongoing conflict that includes the full and unconditional reopening of the Strait of Hormuz is essential to prevent a further deterioration in global energy security.
