Energy Agency: Iran War Erases Global Oil Demand Growth This Year

SadaNews - The International Energy Agency has reported that global oil demand will decline this year for the first time since the 2020 pandemic, as rising prices from the Middle Eastern conflict undermine growth.

The agency, which advises major economies, stated in its monthly report: "The Iran War has completely overturned the global oil consumption forecasts... The scale of demand destruction is expected to widen as supply remains tight and prices continue to rise".

Historic Disruption in Oil Supplies

The conflict has choked oil flows through the Strait of Hormuz, a vital artery for the Arabian Gulf, resulting in the largest supply disruption in history according to the agency. Additionally, the sharp rise in actual oil prices and products such as jet fuel, diesel, and gasoline is pressuring consumers and undermining demand.

Last month, the agency, based in Paris, oversaw the release of a record 400 million barrels of emergency oil reserves by member countries, including the United States, Japan, and Germany, in an effort to contain rising costs.

Collapse of Flows and Production

Crude oil and refined product flows through the Strait of Hormuz have dropped to just 3.8 million barrels per day, compared to about 20 million barrels per day before the crisis, which equates to roughly 20% of global supplies.

Global oil supply also decreased by about 10.1 million barrels per day last month, nearly 9%, with countries like Saudi Arabia, Iraq, the UAE, and Kuwait forced to shut down part of their production, according to the agency.

The decision to impose a blockade on ships going to and from Iranian ports, announced by U.S. President Donald Trump, went into effect on Monday.

Gap Between Actual Prices and Futures

Despite futures contracts for oil registering an unprecedented increase in March, they remain well below record levels and actual shipment prices, trading at just below $100 per barrel in London.

The agency noted that this "disconnect" between futures and actual markets has become more pronounced, while the agency's executive director, Fatih Birol, stated that futures contracts do not yet reflect the magnitude of the crisis, but will catch up soon.

Shift from Growth to Contraction

The report indicated that the expected growth in global demand, initially estimated at about 730,000 barrels per day, has been completely wiped out, with consumption now expected to contract by about 80,000 barrels per day.

The agency added that petrochemical input shows the most immediate effects of the war, as the closure of the Strait of Hormuz has disrupted supply chains to Asia.

Open Scenarios for Risks

The agency's baseline forecasts assume that oil flows in the Middle East will largely return to normal by mid-year, but it also presented a scenario of longer disruptions.

The agency warned: "In this scenario, energy markets and economies around the world will have to prepare for significant disruptions in the coming months".