The International Energy Agency (IEA) has issued a serious warning: the global crude oil market could enter "red zone" during the months of July or August, as oil reserves are depleted and increasing fuel demand further strains supply amid the summer travel boom.
"Normally, oil demand and consumption increase. Then, with these two factors, reserves are running out, new oil is not arriving from the Middle East, and demand is increasing. This can be complex, and we could enter the red zone in July or August if the situation does not improve," stated IEA director Fatih Birol at an event hosted by the British think tank Chatham House.
The closure of the Strait of Hormuz as a result of the war in Iran has significantly exacerbated supply tensions, leaving the oil market in a delicate position just before the start of the peak travel season. "The problem is that, at the end of June or beginning of July, the travel season begins," highlighted Birol.
Birol believes that the only truly effective way to alleviate pressure on the market is through the reopening of the Strait of Hormuz, through which about one-fifth of the world's oil circulated before the conflict. The IEA has activated various measures to try to contain the impact, such as releasing part of its strategic reserves and disseminating specific recommendations aimed at different economic sectors.
Even so, the agency's top official acknowledged that "all measures together are not the solution to the problem" and stressed that "the most important solution is the full and unconditional opening of the Strait of Hormuz."
"If it (Hormuz) is not opened, these reserves we have will be depleted. If you have money in your pocket and no income, you can spend, spend, and spend, but that has a limit. We are reaching the end," he asserted.
An Unprecedented Recent Oil Crisis
THE CURRENT CRISIS EQUALS THE PREVIOUS THREE
Fatih Birol reiterated that the energy crisis stemming from the conflict in the Middle East is the most severe experienced to date, to the point of equating its magnitude to the sum of the three major energy crises of the last 50 years.
"So far, we have had three major energy crises: that of 1973, that of 1979, two major oil crises, and that of 2022, after the Russian invasion of Ukraine (...) this crisis is greater, I would say much greater, than the three historical crises combined," he stated.
IEA data indicate that the economic impact of those three crises does not reach the intensity of the recent disruptions in the oil and gas markets. Furthermore, Birol recalled that not only crude oil but also other fundamental inputs for the global economy, such as fertilizers and chemical products, transited through the Strait of Hormuz.
"An enormous amount of vital raw materials transited through the state of Hormuz, such as fertilizers, petrochemicals, helium, and sulfur, and this will have significant repercussions for the world, for the economy, and for many countries, especially those in the developing and emerging world," he indicated.