Panic as Iran war creates oil crisis 'bigger than the 1970s'

The war in Iran has unleashed the “largest supply disruption in the history of the global oil market”, The International Energy Agency (IEA) has warned, exceeding even than the oil crisis of the 1970s. The global energy watchdog says the flow of oil through the Strait of Hormuz, a vital route in the global oil trade, is now “a trickle” after Iran halted shipments through it.

The Paris-based organisation has reduced its energy production forecasts in response, with oil prices rising higher again on Thursday as Tehran continues to hit key energy and shipping infrastructure in the Middle East. The shock is already starting to impact British households, including through petrol prices in another headache for Rachel Reeves, who will demand answers today from petrol retailers overcharging drivers amid the conflict in the Middle East. The Chancellor and Energy Secretary Ed Miliband will meet forecourt bosses and energy suppliers in Downing Street after fuel costs jumped significantly.

The IEA has a membership of 32, including major powers like the United States, Germany, France, and the UK. On Wednesday, the alliance agreed to release 400 million barrels of reserves to address a potential supply shortage, a record amount.

The IEA said the oil release, the largest in the five decades since the alliance was established, would account for around a third of its 1.2 billion barrel emergency stockpile as it looked to stabilise oil markets.

But markets remain under major strain after three more cargo vessels were hit in the Gulf as Tehran stepped up its threats to disrupt shipments, which has sent oil and gas prices soaring, with crude at one stage hitting nearly 120 dollars (about £90.43) a barrel earlier this week, before declining after US President Donald Trump sought to calm markets by allaying fears of a prolonged conflict.

The US has offered a number of explanations for the attacks on Iran, including an imminent threat to the United States, and the need to destroy the country's missile and military capabilities, though critics have called for clarity on the basis for military action.

The IEA's latest Oil Market Report, put out on Thursday, March 12, says global oil supply is projected to plunge by eight million barrels a day this month, with crude and oil flowing through the Strait of Hormuz heavily disrupted.

20 million barrels typically pass through the strait each day, but with vessels under threat from Iranian attacks, Gulf countries have slashed total oil production by at least 10 million barrels a day and “supply losses are set to increase” unless shipping is quickly started up again, the organisation said.

Shipments through it have stopped almost completely in the almost two weeks since the war was triggered by US-Israeli strikes on Iran, which reportedly killed the country's former Supreme Leader Ali Khamenei, and dozens of senior figures in the regime.

By singling out the crisis as the largest to hit the global oil market, the IEA suggests its implications are greater than the Arab oil embargo of 1973 when oil-producing Arab countries temporarily ceased shipments to the United States and other countries in retaliation for supporting Israel during the Yom Kippur War.

The alliance said impacted production has been partly offset by higher production from non-OPEC+ producers, Kazakhstan and Russia.

The price of brent crude rose by another 5% to more than 96 US dollars (£72.34) a barrel in morning trading on Thursday, having seen similar gains on Wednesday.

Stock markets have tumbled worldwide in the wake of the crisis, and were lower again yesterday, with the FTSE 100 Index in London down 0.7%, or 67.9 points lower, at 10285.9 in early trading.

Meanwhile, the Cac 40 in France and Germany's Dax were both 0.4% lower, following declines overnight in Asia.

The report says the emergency stock release "provides a significant and welcome buffer, but in the absence of a swift resolution to the conflict, it remains a stop-gap measure".

"The ultimate impact on oil and gas markets and the broader economy from the conflict will depend not only on the intensity of military attacks and any damage to energy assets, but also, crucially, on the duration of disruptions to shipping through the Strait of Hormuz," it adds.

"Adequate insurance mechanisms and physical protection for shipping are key to the resumption of flows, which is of paramount importance for the oil market."

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