The World’s Biggest Oil Supply Shock Is Now Unfolding
- The IEA says the war has caused the biggest crude supply disruption in oil market history.
- Oil rose back above $100 even after a record 400 million barrel reserve release.
- Analysts warn that a prolonged energy shock could push the UK toward recession.
The International Energy Agency (IEA) has warned that the current energy crisis triggered by the war in the Middle East marks the “largest disruption” in the history of the oil market.
The group made a record intervention in the market on Wednesday, with the release of 400m barrels from the strategic reserves.
But the move has made little difference to the surging price of Brent crude – the international benchmark for oil – which once again eclipsed the $100 mark on Thursday on the news two Iraqi tankers had been struck and following more bellicose rhetoric from Iran’s new leadership.
Ipek Ozkardeskaya, senior analyst at Swissquote, said: “The math is simple: 400m barrels would only be enough to meet the IEA’s oil demand for roughly 9-10 days.
“After that? The IEA system is estimated to hold around 1.2 billion barrels. It goes fast. Its head, Fatih Birol, said that only the resumption of normal trade through the Strait of Hormuz would help. Well, that’s not on the menu du jour.”
In his first statement since taking the helm, Iran’s new Supreme Leader, Mojtaba Khamenei, has vowed to continue blocking the Strait of Hormuz, the vital narrow waterway through which a fifth of the world’s oil supply flows.
Khamenei said the regime would also “avenge the blood” of those killed in US and Israeli attacks.
The IEA has said the current crisis has caused the “largest disruption to crude supplies in the history of the global oil market”.
Joshua Mahony, chief market analyst at Scope Markets, said: “With Iran seemingly ramping up attacks on both land and waterborne energy targets, the fallout for global energy supplies does appear to be worsening by the day.”
Long-lasting oil crisis could ’tilt’ the UK into recession
Major economies could be left reeling from the consequences of a potential oil supply crisis.
Analysts at the RBC Capital Markets have warned that a long-lasting war could “tilt” the UK economy into an “outright recession” given the state of the country’s vulnerable jobs market.
“Labour markets are in a substantially weaker position now than was the case in 2022 and there must also be a non-trivial possibility that firms will not be able to pass on prices fully and have to take margin cuts instead.
“The UK is already, arguably, on this path as firms’ response to the ‘input price shock’ of higher employer social security contributions announced at the Budget in 2024 has been to substantially scale back hiring.
If that were to be the global pass-through of the impending energy crisis, the slowdown might not be as jobs-rich as was the case in 2022, and central banks might find themselves in a more difficult trade-off between higher energy price inflation and a (much) weaker economic backdrop than hitherto expected. “
The comments follow warnings by Oxford Economics researchers that, if the price of oil were to hover around $140 per barrel, interest rates would be raised and the UK economy would contract.
The Bank of England’s next meeting is now highly anticipated to feature comments from Monetary Policy Committee members on the impact of the conflict.
The last meeting featured the Bank’s governor, Andrew Bailey, describing improved inflation forecasts as “good news”.
By CityAM
Jet Fuel Prices Soar as War in Iran Ripples Through Global Aviation
- Airlines, including Qantas, SAS, and Air New Zealand, have already announced airfare increases.
- Surging jet fuel prices and disruptions in the Strait of Hormuz are squeezing airline operations.
- Prolonged conflict could weaken travel demand and deepen pressure on global airline stocks.
As the war in Iran spills over into other parts of the Middle East, energy experts expect the price of several oil and gas products to soar over the coming months, driven by shortages. This will likely affect flight prices, with several airlines warning of anticipated price hikes. It could lead to a travel slump, as consumers wait for prices to fall again.
Australia’s Qantas Airways, Scandinavia’s SAS, and Air New Zealand are three of the airlines to have already announced airfare hikes in response to the ongoing conflict in the Middle East. The airlines cited the abrupt spike in the cost of fuel driven by the U.S.-Israel attack on Iran as the reason for the move.
Jet fuel prices rose from between $85 to $90 a barrel before the attack on Iran to as much as $150 to $200 a barrel this week. This has led several airlines to reconsider their financial outlooks for 2026, as the uncertainty makes it impossible to predict where the price of fossil fuels will go in the coming months.
The war in Iran has led to the closure of the Strait of Hormuz, a key trade corridor connecting the Persian Gulf with the Gulf of Oman and the Arabian Sea. The strait is considered a chokepoint, as there are few alternative options for energy transportation, beyond some limited pipeline networks in the region. The dramatic reduction in the transport of fossil fuels through the strait, which is said to have created the biggest oil supply disruption in history, has driven oil and gas prices up sharply in recent weeks.
An SAS spokesperson told Reuters, “Increases of this magnitude make it necessary to react in order to maintain stable and reliable operations,” adding that the airline has implemented a “temporary price adjustment.”
Some airlines will be more affected than others by the increase in jet fuel prices. For example, several Asian and European airlines, such as Lufthansa and Ryanair, have oil hedging in place, meaning that a part of their fuel supplies is maintained at a fixed rate. However, some companies are concerned that even the hedged fuel reserves may be at risk.
Finnair hedged more than 80 percent of its first-quarter fuel purchases and now worries that the fuel may no longer be available if the conflict continues. Some major jet fuel producers, such as Kuwait, have already been forced to reduce production and export quantities in recent weeks.
Another challenge that is driving airfares up is the closure of several airspaces because of the ongoing conflict, which has affected several Asia-Europe routes. Some airlines have been forced to open alternative flight routes for passengers to reach their destinations. Pilots have also been forced to reroute to avoid the Middle East conflict, while capacity on popular routes has rapidly increased.
“Absent near-term relief, airlines around the world could be forced to ground thousands of aircraft while some of the industry’s financially weakest carriers could halt operations,” Deutsche analysts were reported to have said in a note to clients.
Meanwhile, some companies, such as British Airways, are confident that they can maintain their current ticket prices in the near-term until more is known about the mid- to long-term impact of the conflict. However, British Airways has cut certain routes due to continuing uncertainty, such as its seasonal flights to Abu Dhabi.
The uncertainty means that several airlines, across Asia, Europe, and North America, are seeing their shares plummet. Lorraine Tan, the director of equity research, Asia at Morningstar, stated, “The issue for the airlines now is that travel demand may be curtailed as costs become prohibitive for leisure travellers and as some companies start to limit business travel due to the uncertain outlook."
On Monday, during a party conference in Florida, U.S. President Trump announced, “We have already won in many ways, but we haven’t won enough,” in reference to the war in Iran. Trump says. The president added, “We go forward more determined to achieve ultimate victory that will end this long-running danger once and for all.” Trump’s speech, as well as mixed messages from the president to several media outlets, have caused greater uncertainty, as there is no clear timeline for the conflict or an idea about when it might end.
The ongoing conflict in the Middle East has already caused significant energy supply chain disruptions, which have driven oil and gas prices up. Meanwhile, uncertainties about when the U.S.-Israeli intervention in Iran will come to an end have led stocks across a range of industries to fall sharply. While many airlines attempt to weather the storm, it is likely that we will see significant price increases in airfares in the coming months.
By Felicity Bradstock for Oilprice.com
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