Oil markets are now facing the “biggest supply disruption in history” as the war in Iran continues to prevent oil tankers from producing and shipping millions of barrels of crude every day, the global energy watchdog has warned.
The International Energy Agency (IEA) said the supply shock caused by Iran’s effective blockade of the Strait of Hormuz meant the world faced a deeper crisis than after the 1973 Yom Kippur War and the outbreak of war in Ukraine in 2022.
The warning came as Iran issued a statement said to be the first by its new supreme leader, Mojtaba Khamenei, to call for the vital trade artery to “remain closed”, in a blow to hopes for a resolution to the crisis.
In response, global oil prices surged back above $100 (£75) a barrel on Thursday, as Iran’s widespread attacks on energy facilities in the Middle East overshadowed a major release of government reserves.
In a bid to calm concerns about oil supply, the IEA on Wednesday ordered the largest release of government reserves in its history, when its 32 members unanimously agreed to release 400 million barrels of emergency crude.
Additionally, the United States agreed to release 172 million barrels of crude oil from its strategic oil reserve, in the White House’s boldest attempt yet to lower oil prices.
Before this week, there had only been four other coordinated releases of strategic supplies since the IEA was founded in 1974, underscoring the severity of the current crisis.
They were in 1991, after Operation Desert Storm, President George HW Bush’s military campaign against Iraq; in 2005, when Hurricane Katrina cut U.S. production in the Gulf of Mexico in half; in 2011, when NATO allies intervened in the Libyan civil war; and in 2022, following Russia’s large-scale invasion of Ukraine.
However, despite the coordinated effort to allay fears of a sustained supply crisis, the price of Brent crude oil surpassed $100 a barrel overnight. The international benchmark subsequently fell back to $97, but rose again to $101 (£74.88) after Mojtaba’s comments.
When prices resumed their rise, Iran’s military command goaded the United States. “Prepare for oil to reach $200 a barrel, because the price of oil depends on regional security, which you have destabilized,” a spokesman said.
Wall Street opened lower, with the Dow Jones falling 1.1% and the S&P 500 falling nearly 1% in early trading. In Europe, the FTSE 100 fell less than 1% and the Stoxx 600 fell around 1%. In Tokyo, Japan’s Nikkei 225 index fell 1.3%, as did Australia’s S&P ASX 200.
Following Donald Trump’s pledge on Wednesday to “finish the job” and move forward with the US-Israel war against Iran, the country’s regime escalated retaliatory attacks against economic targets across the region.
Several merchant ships were hit in and around the Strait of Hormuz, one of the most important arteries of world trade.
Meanwhile, Iraq halted all operations at its oil ports after an attack on two nearby oil tankers. Bahrain told residents to stay home after an Iranian attack on fuel tanks in Muharraq governorate.
Oman pulled all ships from its main oil export terminal at Mina Al Fahal – one of the few remaining ports from which Middle East crude can be shipped to the world – after drone attacks on another of its ports, Bloomberg reported, citing sources who received a notification from a port agent.
The IEA said on Thursday that the war with Iran was expected to reduce the region’s oil and gas production by at least 10 million barrels of oil per day.
The escalating regional conflict has damaged key oil and gas infrastructure and many producers have begun to shut down production as exports through the Strait of Hormuz have halted and local storage facilities fill up.
In a report, the IEA said the sharp drop in Middle East production could lead to a drop in global oil production of 8 million barrels per day this year, even with higher production from countries such as Russia.
The drop in global oil supplies would far outweigh the dent in global demand as a result of the war, according to the global energy watchdog. It has cut 1 million barrels of oil a day from its global oil demand forecasts for this year due to lower refining and air travel in the Middle East.
The effect of rising energy costs is also expected to hit global economic growth, which could cause a further drop in demand, but the IEA said it was too early to say how big the impact could be.
The global oil deficit is expected to increase pressure on the market, which is already experiencing wild swings as the war unfolds.
The price of oil surpassed the $100 mark for the first time in four years on Monday, when it soared as much as 29% to hit a high of $119, before falling sharply after Trump described the war as “very complete” in a series of contradictory comments. The price of oil was around $60 a barrel at the beginning of the year.
