The global oil market could enter a "red zone" by July or August as dwindling stockpiles and rising summer demand collide with the ongoing energy shock from the Iran war, the head of the International Energy Agency said Thursday.
"If no new oil is coming online from the Middle East, an ongoing drawdown in global stockpiles combined with an uptick in demand during the summer travel season means oil markets may be entering the red zone in July or August," IEA Executive Director Fatih Birol said during a session at Chatham House in London.
The warning comes as oil prices continue to reflect supply anxieties. Brent crude futures rose 0.4 percent to $105.42 a barrel, while U.S. West Texas Intermediate (WTI) futures gained 0.5 percent to $98.76 a barrel. The supply crisis has prompted a record withdrawal of roughly ten million barrels from the U.S. Strategic Petroleum Reserve last week, according to the Energy Information Administration.
The crisis stems from the virtual closure of the Strait of Hormuz, a chokepoint for about 20 percent of the world's oil and liquefied natural gas, following the start of the U.S. and Israeli-led conflict with Iran on Feb. 28. While the market initially had a surplus to absorb the shock, those inventories are now rapidly depleting, setting the stage for a potential supply crunch and higher energy prices globally.
Hormuz Remains Choked
The primary driver of the supply disruption is Iran's de facto blockade of the Strait of Hormuz. Tehran has established checkpoints and a "controlled maritime zone," effectively halting most of the 20 million barrels per day that flowed through the passage before the conflict. While shipping data showed three supertankers carrying a combined six million barrels of crude managed to transit the strait this week, these are exceptions to the near-total stoppage that has been in place for months.
The IEA has previously called the situation the most severe disruption in the market's history. Birol noted that the single most important solution is a "full and unconditional reopening" of the strait.
A Grim Long-Term Outlook
Underscoring the severity of the situation, the head of the United Arab Emirates' state oil firm, ADNOC, offered a more pessimistic timeline than the IEA. "Even if this conflict ends tomorrow, it will take at least four months to get back to 80 percent of pre-conflict flows, and full flows will not return before the first or even second quarter of 2027," ADNOC CEO Sultan Al Jaber said at an Atlantic Council event.
Jaber warned that allowing a single country to hold the world's most important waterway hostage sets a "dangerous precedent" for the principle of freedom of navigation. He highlighted the broad economic pain, noting that in the 80 days since the conflict began, fuel prices have risen 30 percent, fertilizer prices have jumped 50 percent, and airfares are a quarter higher. "Every farm, every factory, every family is paying the price," he said.
This article is for informational purposes only and does not constitute investment advice.
