Key Takeaways
The head of the world’s leading energy watchdog has issued a stark warning on the profound and lasting volatility injected into global energy markets by the US-Iran war.
The global energy market is entering “deep waters of volatility” as the conflict between the US and Iran disrupts the flow of millions of barrels of crude oil daily, the head of the International Energy Agency said. The effective closure of the Strait of Hormuz has sent fuel prices soaring and threatens broader economic stability.
“In my opinion, the name of the game is maybe volatility, and therefore, oil security will remain a key issue,” Fatih Birol, the IEA’s executive director, said at the Canada Growth Summit in Toronto. He warned that the disruption could be sustained and that a return to normal supply would be gradual even after the war ends.
The conflict, which escalated after Iran seized control of the Strait of Hormuz following a US-Israeli attack, has removed a significant portion of the world’s energy supply from the market. Before the war, the strait handled 20% of global oil trade. The number of ships transiting the waterway has fallen by over 90%, with just 534 passing since late February compared to a normal volume of over 6,500, according to Lloyd’s List Intelligence. This has caused the average price of gasoline in the US to jump 50% to $4.56 a gallon.
The chokehold on the strait, which is just 21 miles wide at its narrowest point, has far-reaching consequences beyond the pump. The United Nations World Food Program warns that 45 million people in Asia and Africa could face hunger as shipments of fuel and fertilizer are blocked. With over 1,500 vessels and 22,500 mariners stranded in the Persian Gulf, the crisis represents a significant and escalating humanitarian and economic challenge that continued military action has so far failed to resolve.
The disruption is not confined to crude oil. The cost of jet fuel has nearly doubled, and shipping insurance rates have skyrocketed from 1% to as high as 10% of a vessel's cargo value, adding immense costs throughout the supply chain. These price shocks are fueling global inflation and increasing operating costs for energy-intensive industries from manufacturing to transportation, threatening to dampen consumer spending and overall economic growth.
Iran's control of the strait gives it immense leverage. The country has stated it will only reopen the waterway if the war and a U.S. naval blockade are lifted. A U.S. military initiative, dubbed "Project Freedom," which involved 15,000 soldiers, was paused after escorting just two ships, highlighting the difficulty of forcing the strait open. The conflict has already resulted in attacks on 32 ships and the deaths of 10 mariners, according to the International Maritime Organization.
This article is for informational purposes only and does not constitute investment advice.
