Energy / North America
Impact of Middle East Conflict on Global Oil Markets
The ongoing conflict in the Middle East has led to a dramatic 90% reduction in oil shipping through the Strait of Hormuz, plummeting from 20 million barrels per day to about 2.3 million barrels per day. This disruption poses significant risks to global energy systems and supply chains, particularly affecting Asian markets.
Source material: Podcast episode: The mounting disruptions in oil markets
Summary
The ongoing conflict in the Middle East has led to a dramatic 90% reduction in oil shipping through the Strait of Hormuz, plummeting from 20 million barrels per day to about 2.3 million barrels per day. This disruption poses significant risks to global energy systems and supply chains, particularly affecting Asian markets.
Projections indicate that if the Strait remains closed, total oil supply could decline further by 2.9 million barrels per day. The International Energy Agency (IEA) has noted that this situation marks the largest supply shock in history, with significant implications for global markets.
Refinery operations in the Gulf have suffered significant damage from attacks, leading to a reduction in crude processing by around six million barrels per day. The closure of the Strait has nearly halted product exports, severely impacting global markets, especially in Europe and Asia.
Countries dependent on Middle Eastern crude are facing challenges in sourcing alternatives, particularly those lacking strategic reserves, which is worsening supply issues. The IEA projects a potential decline of 1.5 million barrels per day in oil supply for 2026 if the Strait remains closed until early May.
Perspectives
Analysis of oil market disruptions due to the Middle East conflict.
Proponents of immediate action
- Highlight the urgent need for alternative supply routes to mitigate disruptions
- Argue that the current crisis is unprecedented and requires coordinated global responses
Skeptics of alternative solutions
- Question the effectiveness of alternative routes in fully compensating for lost supply
Neutral / Shared
- Acknowledge the significant impact of the Strait of Hormuz closure on global oil supply
- Recognize the volatility in oil prices as a result of the ongoing conflict
Metrics
other
97 million barrels per day units
total oil supply after the disruption
This figure highlights the scale of the supply shock affecting global markets
it's fallen to about 97 million barrels per day.
other
2.9 million barrels per day units
projected decline if the Strait remains closed
This potential decline underscores the fragility of global oil supply chains
we think it's actually going to fall another 2.9 million barrels per day.
other
7.2 million barrels per day units
increased capacity from alternative routes
This increase indicates efforts to mitigate the impact of the Strait's closure
flows go up to about 7.2 million barrels per day.
other
1.5 million barrels per day units
projected decline in oil supply for 2026 if the Strait remains closed
This projection indicates a severe long-term impact on global oil supply
that equates to about a 1.5 million barrel a day drop for the overall for 2026.
other
12.5%
drop in LPG usage in India due to limited product availability
This decrease highlights the immediate impact on domestic energy consumption
we can see that, say, in India, this lack of product supply has led to a 12.5% drop in March in LPG use.
other
80,000 barrels
anticipated contraction in oil demand this year
A contraction indicates a significant shift in consumption patterns due to price increases
we're now expecting demand to contract this year by 80,000
other
10 million barrels per day
loss of crude from the Middle East Gulf
This loss significantly impacts global supply and market stability
the loss of crude out of the Middle East Gulf is 10 million barrels a day
other
400 million barrels
coordinated release of oil reserves by IEA member states
This release aims to stabilize the market amid rising prices
our member states have already agreed to release 400 million barrels to the market
Key entities
Timeline highlights
00:00–05:00
The ongoing conflict in the Middle East has led to a 90% reduction in oil shipping through the Strait of Hormuz, dropping from 20 million barrels per day to approximately 2.3 million barrels per day. This disruption poses significant risks to global energy systems and supply chains, particularly affecting Asian markets.
- The ongoing conflict in the Middle East has caused a dramatic 90% reduction in oil shipping through the Strait of Hormuz, plummeting from 20 million barrels per day to about 2.3 million barrels per day
- According to the IEAs executive director, this disruption poses a greater risk to global energy systems than the combined crises of the 1970s and the 2022 energy crisis
- The Strait of Hormuz is vital not only for oil but also for other essential commodities, significantly impacting global supply chains, especially in Asian markets
- As of early April, alternative supply routes that bypass the Strait of Hormuz are operating at just under 4 million barrels per day, highlighting their limited capacity to offset the disruption
- The closure of the Strait has resulted in nearly 200 oil-filled vessels and 140 empty vessels being stranded, worsening the supply chain crisis
05:00–10:00
The ongoing conflict in the Middle East has led to a significant reduction in oil transit through the Strait of Hormuz, marking the largest supply shock in history. Projections indicate that if the Strait remains closed, total oil supply could decline further by 2.9 million barrels per day.
- The ongoing conflict in the Middle East has caused a 90% reduction in oil transit through the Strait of Hormuz, decreasing from 20 million barrels per day to around 2.3 million barrels per day
- This disruption marks the largest supply shock in history, with total oil supply dropping to approximately 97 million barrels per day, and projections indicating a potential further decline of 2.9 million barrels per day if the Strait remains closed
- Alternative supply routes have increased their capacity from 4 million barrels per day to 7.2 million barrels per day, mainly through Saudi Arabias East West Pipeline and the UAEs Habshan-Fujairah pipeline
- If the Strait of Hormuz reopens, oil flows could gradually return to pre-war levels, with estimates suggesting that 50% of production could resume within weeks and up to 80% within four to six weeks, depending on the state of oil fields and storage capacities
- Refinery operations in the Gulf have been affected by attacks on facilities, complicating the recovery of oil supply and market stability
10:00–15:00
The ongoing conflict in the Middle East has led to unprecedented disruptions in oil supply, particularly through the Strait of Hormuz. This situation has severely impacted global markets, especially in Europe and Asia, where demand for refined products has sharply decreased.
- Refinery operations in the Gulf have suffered significant damage from attacks, leading to a reduction in crude processing by around six million barrels per day
- The closure of the Strait of Hormuz has nearly halted product exports, severely impacting global markets, especially in Europe and Asia, where demand for jet fuel and petrochemical feedstocks has sharply decreased
- Countries dependent on Middle Eastern crude are facing challenges in sourcing alternatives, particularly those lacking strategic reserves, which is worsening supply issues
- The International Energy Agency (IEA) projects a potential decline of 1.5 million barrels per day in oil supply for 2026 if the Strait remains closed until early May, with further reductions likely if conflicts persist
- The disruptions have significantly impacted refining, petrochemicals, and airlines, with a reported 12.5% decrease in LPG usage in India due to limited product availability
15:00–20:00
The ongoing conflict in the Middle East has led to unprecedented disruptions in oil supply, particularly through the Strait of Hormuz. This situation has severely impacted global markets, especially in Europe and Asia, where demand for refined products has sharply decreased.
- Oil market prices are highly volatile, with crude prices increasing by about two-thirds since the onset of conflict and product prices, like petrol, rising nearly 50%
- A contraction in oil demand of 80,000 barrels is anticipated this year, driven by elevated prices and slower economic growth, reminiscent of the demand decline during the COVID-19 pandemic
- Global oil stocks are rapidly diminishing, currently at around eight billion barrels, which is approximately 80 days of consumption, as crude losses from the Middle East Gulf reach 10 million barrels per day
- IEA member countries possess about four billion barrels of global oil stock, with 1.8 billion barrels held in reserve by governments or industries, and a coordinated release of 400 million barrels has been agreed to stabilize the market