Iran War Triggers Worst Global Energy Crisis on Record

The Iran war has triggered what experts are calling the worst global energy crisis on record, with significant disruptions to oil and gas supplies through the critical Strait of Hormuz. According to Reuters, this conflict has reduced global crude supplies by 13 million barrels per day (bpd), representing a 12% decrease since the war began in February.

The current crisis is part of a broader pattern of energy shocks over the past decade, including Russia's invasion of Ukraine in 2022 and the post-pandemic inflation surge. The International Energy Agency (IEA) has described this as the most severe energy crisis ever faced when combined with the lingering effects of Europe's gas crisis from Russia's actions.

The disruption extends beyond crude oil to include natural gas, refined fuels, and fertilizers, exposing new vulnerabilities in global energy markets. The IEA reported that the peak supply loss stands at over 12 million bpd, which is equivalent to 11.5% of global oil demand. This surpasses previous shocks such as the 1973 Arab oil embargo and the Iranian Revolution.

The immediate impact has been a significant reduction in global oil demand, with estimates ranging from 4 million bpd according to Vitol's CEO Russell Hardy to 2.3 million bpd for April by the IEA. Governments worldwide have implemented emergency energy-saving measures, including four-day work weeks and fuel rationing, further curtailing demand.

In response to the crisis, the IEA released a record 400 million barrels of oil from strategic stockpiles to stabilize prices and offset lost Middle Eastern supply. The long-term effects of this conflict are expected to include changes in energy security policies, potentially increasing global demand for fossil fuels despite ongoing shifts toward renewable energy sources.

The crisis has also reignited questions about Britain's grid strategy, particularly why the UK continues to have one of the most expensive electricity markets in the world. Despite the growing role of domestically generated renewable power, electricity wholesale prices in the UK have more than doubled since the war in Iran triggered a global squeeze on seaborne gas shipments from the Gulf.

Asian refining throughput is set to tumble in April and May as crude imports hit a 10-year low. The closure of the Strait of Hormuz has forced refiners to process lighter grades, curbing diesel and jet fuel output by at least 1 million barrels per day. Crude imports to Asia are on track to fall 22% on an annual basis to 20.4 million bpd in April, the lowest level since 2016.

Chinese refinery throughput has decreased significantly, with state-owned refineries increasing yields of transportation fuels at the expense of naphtha for petrochemicals. In South Korea and Japan, refinery utilisation rates are expected to drop to around 65% in late April and early May. Singapore's refinery utilisation rates have averaged below 50%, down from typically 70%. Indian crude runs fell nearly 13% to roughly 5.0 million bpd in April.