The world is facing "the biggest energy security threat in history," warned Fatih Birol, head of the International Energy Agency (IEA), at CNBC's Converge Live in Singapore. The statement comes amid a severe double-blockade of the Strait of Hormuz, a critical maritime passage that previously transited an average of 20 million barrels of oil and petroleum products daily.
According to Birol, the ongoing conflict with Iran and the continued closure of the strait have already resulted in the loss of 13 million barrels per day of oil, along with significant disruptions to other vital commodities. The IEA has labeled the strait one of the world's "most critical oil transit chokepoints." Neither Iran nor the United States is currently permitting vessels to pass through, creating what Birol describes as a potential trigger for "the largest energy crisis we have ever faced."
The IEA warns that the blockade will severely impact global economic growth, fuel inflation, and could necessitate energy rationing. In particular, an immediate jet fuel crisis is anticipated in Europe, with the IEA projecting shortages in some nations within the coming six weeks, as the Middle East supplies approximately 75% of Europe's jet fuel. Finding alternative suppliers is expected to be challenging, as major potential sources like South Korea, India, and China also have limited jet fuel available for export.
To mitigate the disruption, the 32-member IEA agreed in March to draw 400 million barrels of oil from its emergency reserves. In early April, Birol stated that while a second release of reserves is possible, it would only be a temporary reprieve, not a definitive solution. "The cure is opening up the Strait of Hormuz. We are gaining some time, but I don’t claim that this will be a solution," he noted.
Oil markets have responded sharply. At the time of writing, Brent crude oil on the Intercontinental Exchange was up 1.8% at $103.79 a barrel, climbing back over the triple-digit mark as uncertainty prevails over peace negotiations between the US and Iran. West Texas Intermediate crude oil was at $94.83 a barrel, up 2% from the previous close.
In a separate analysis, BNY issued a stark warning about the potential consequences of a Hormuz blockade. The bank's report, titled "Oil: Security shock and Hormuz blockade," estimates a 15-20% probability of such an event. It suggests that if a blockade materializes, crude oil could spike above $150 per barrel, representing a 40% increase from current levels. The report highlights that the blockade would hit Asian economies—Japan, India, and South Korea—the hardest, while Europe would also suffer despite its reduced dependence. BNY's analysis shows that a one-week blockade could cause a 10% price spike, while a one-month blockade could cause a 50% spike, emphasizing that the oil security shock is not linear but compounds over time.
Birol also noted that he expects nuclear power, renewables like solar and wind, and electric cars to benefit from the crisis, while in some big countries in Asia, coal usage may also see a resurgence.
