Iran war removes 15% of global oil supply, pushing prices over $100

The global oil market is facing an unprecedented supply shock, with nearly 15% of global output taken offline by the war in Iran, according to the International Energy Agency. The crisis, centered on the effective closure of the Strait of Hormuz, has pushed Brent crude above $100 a barrel and forced a dramatic reassessment of global energy security.

"With Hormuz tanker traffic still restricted, cumulative supply losses from Middle East Gulf producers already exceed 1 billion barrels with more than 14 million barrels per day of oil now shut in, an unprecedented supply shock," the IEA said in its May report.

The disruption has sent prices for refined products soaring, with jet fuel and diesel doubling since January and EU diesel hitting a record €2.11 per litre in April. The IEA now forecasts a 1.78 million barrel per day (bpd) deficit for 2026, a stark reversal from the 4 million bpd surplus projected in December, and estimates global inventories were drawn down by 246 million barrels in March and April alone.

The crisis forces a strategic realignment for energy importers, particularly in Asia, which depends on the Middle East for 60% of its oil. The IEA's base-case for a gradual reopening of the strait from Q3 suggests the market may not see relief until late 2026, prolonging a period of high inflation, economic strain, and potential fuel shortages globally.

The IEA's dramatic revision of its market outlook underscores the severity of the situation. The agency now sees a potential second-quarter deficit of 6 million bpd. This has prompted the largest-ever coordinated release of strategic petroleum reserves, with 400 million barrels authorized and 164 million barrels already released as of the report. Still, this has not been enough to cool prices, with benchmark Brent crude hitting a four-year high of $126 a barrel in April.

Refining Capacity Crunch Deepens Fuel Shortages

Compounding the crude supply shock is a crisis in refining. The wars in Iran and Ukraine have knocked nearly 9% of global oil refining capacity offline, according to a Reuters analysis. Attacks and precautionary shutdowns have shuttered more than 2.3 million bpd of capacity in the Middle East, while Ukrainian drone strikes have taken an estimated 700,000 bpd of Russian processing offline.

This has created a glaring deficit in refined products, particularly diesel and jet fuel. "Lower refinery runs in Asia and Russia have had a disproportionately large impact on gasoil and diesel," said FGE analyst Qilin Tam. The IEA warned in April that Europe could face jet fuel shortages as early as June if supplies from the Gulf are not fully restored, a situation that threatens to cause even higher airfares and flight cancellations.

A World of Winners and Losers

While the price shock is global, its consequences are not evenly distributed. Asia, which relied on the Middle East for roughly 60% of its oil imports, has been hit hardest. In contrast, the U.S., now the world's largest oil producer, has been partially insulated, though consumers are still paying over $4.50 a gallon for gasoline, up from less than $3 before the war.

For some, the crisis has been a boon. Russia's oil-export revenue has surged, providing a lifeline to its economy. Within the Gulf, Saudi Arabia and the U.A.E. have been able to bypass the Hormuz chokepoint for about half their pre-war exports via pipelines, mitigating their losses. Oman, located outside the strait, has seen revenues climb. However, Iraq and Kuwait have seen exports plummet, and Qatar's significant liquefied natural gas (LNG) exports are completely offline.

The disruption is forcing a rapid, and likely permanent, shift in energy strategy worldwide. Nations are being forced to prioritize supply diversification and accelerate transitions to alternative energy sources. For many, this will mean a greater reliance on renewables and electrification, but it may also strengthen the case for investing in new pipelines and domestic production in regions like the Americas and Africa to reduce exposure to geopolitical chokepoints.

This article is for informational purposes only and does not constitute investment advice.