World absorbs historic Iran war oil supply loss, but depleted stocks bring risks
Written by: Dmitry Zhdannikov, Robert Harvey and Ahmad Ghaddar
LONDON, July 6 (Reuters) – The world has accepted with surprising ease the loss of more than a billion barrels of oil supplies since the start of the Iran war, but with long-term peace proving elusive and buffer reserves now depleted, the world still faces the looming risk of future price rises.
Tehran’s narrowing of the Strait of Hormuz in response to attacks launched by the United States and Israel on February 28 has fueled fears of a catastrophic global energy crisis.
The ensuing four-month conflict actually caused the largest energy blackout in history, according to the International Energy Agency. At worst, the supply loss amounted to 14 million barrels per day.
But fears of running out of gasoline, diesel or jet fuel in Asia and Europe never materialized. After peaking around $126 a barrel in April (still about $20 below the 2008 record), benchmark Brent oil prices are now lower than when the conflict began.
“This suggests that investors view the disruption as severe but manageable, reflecting confidence in today’s more resilient energy and economic systems,” said John Baffes, senior economist at the World Bank.
World Bank data show that since the oil crisis of the 1970s, oil intensity (a measure of the role oil plays in economic activity) has fallen by more than half in most developed economies and by nearly 20% in emerging and developing countries.
But beyond this structural change, three specific factors were responsible for averting the worst-case scenario during the Gulf crisis.
Saudi Arabia and the UAE found alternative ways to export. Asia, led by China, restricted purchases. And countries around the world have likely drawn nearly 1 billion barrels of oil from their reserves, including the record stockpile release led by the IEA.
ADJUSTMENTS IN CHINA REDUCE GLOBAL PRESSURE
According to the U.S. Energy Information Administration, about 1.4 billion barrels of oil were stored in China when the war began. This was more than the 1.2 billion barrels held by all 32 members of the IEA, including the United States’ 413 million barrels.
China’s rapid adoption of electric vehicles in recent years has also helped, as has flexibility in oil and petrochemical production, said Ilia Bouchouev of the Oxford Institute for Energy Research.
“They are running the market (the Organization of Petroleum Exporting Countries) much better than they used to,” said Bouchouev, former head of derivatives trading at Koch Global Partners.
Adjustments made by China, the world’s largest oil importer, helped ease global demand pressure. And the IEA’s plan to release 400 million barrels of reserves provides more breathing room at a time when US President Donald Trump has repeatedly indicated that an end to the war is near.
