New Delhi: A resolution to the ongoing Middle East conflict that includes a full and unconditional reopening of the Strait of Hormuz will be essential to avoid a further deterioration in global energy security, the International Energy Agency (IEA) said, as it warned there was "no room for complacency" on oil security amid the escalation in hostilities. In a statement, IEA Executive Director Fatih Birol said the agency was closely monitoring oil markets following recent developments in the conflict.
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The escalation affecting the Strait of Hormuz and energy infrastructure in the region has raised security-of-supply concerns and increased uncertainty over the market outlook, Birol said. He added that threats to the Bab el-Mandeb Strait — which he said had become increasingly important as a route to bypass the Strait of Hormuz — were exacerbating those concerns further.
For the moment, Birol said, crude oil markets continue to benefit from several cushioning factors. He said significant supplies from Gulf producers — notably through what he described as major efforts by Saudi Arabia and the United Arab Emirates — were still reaching global markets via alternative routes to the Strait of Hormuz, alongside volumes still passing through the strait itself. The IEA estimated that Gulf exports were below their late-June highs but still considerably higher than the levels seen between early March and mid-June.
Producers in other regions, notably the United States, Brazil, Venezuela and Kazakhstan, had increased exports, offsetting some of the supply losses from the Gulf, Birol said. On the demand side, he said China had played an important role in stabilising markets by cutting its crude oil imports by nearly 50 percent compared with pre-war levels.
Ongoing emergency stock releases by IEA member countries continue to provide significant relief, Birol said. Of the 400 million barrels the IEA announced it would make available under a collective action on March 11, around 290 million barrels had been released, with more continuing to flow, he said. IEA countries still held a substantial volume of emergency stocks in reserve, including over 1 billion barrels of government-controlled stocks, according to the statement.
Birol said there was no room for complacency amid the escalation and a continued drawdown of available commercial inventories.
The IEA flagged refined products as a particular pressure point. Refinery activity and product supplies had not picked up as much as crude deliveries, Birol said, meaning markets for refined oil products, including diesel and gasoline, were considerably tighter than those for crude.
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In natural gas markets, increased LNG flows from other suppliers, led by the United States and also Canada, had offset around 70 percent of the supply lost via the Strait of Hormuz, Birol said. He warned that further delays in resuming Gulf exports risked keeping markets tighter for longer, and that this would be felt by all LNG importers, including Europe as it looks to refill gas storage for next winter.