The U.S.-Israeli war on Iran has triggered the most severe disruption to global energy supply in decades, halting shipping through the Strait of Hormuz, forcing production stoppages across the Gulf and driving warnings of catastrophic consequences for oil markets worldwide.
The Strait of Hormuz, through which roughly 20% of global oil and liquefied natural gas passes, has all but ceased to function as a shipping lane since Iran declared it closed on 2 March, threatening to fire on vessels attempting to transit and warning markets to “get ready for oil at $200 a barrel.” About a dozen ships have been attacked in recent days, including three on 11 March, according to UK Maritime Trade Operations.
The Paris-based International Energy Agency on Wednesday ordered the release of 400 million barrels from global reserves — the largest such action in its history — but the move has so far done little to slow the rise in prices. Saudi oil giant Aramco has warned of looming “catastrophic consequences” for the market.
Production in freefall
The scale of supply disruption across the region is extensive. Iraq’s output from its main southern oilfields has fallen 70%, from 4.3 million barrels per day to just 1.3 million. Qatar halted operations at its LNG facilities on 2 March, affecting plants that together supply around 20% of global LNG, and declared force majeure on shipments two days later. Kuwait Petroleum Corporation followed suit on 7 March.
Saudi Arabia has cut output only marginally to around 9.8 million barrels per day, though it suspended operations at its 550,000-bpd Ras Tanura refinery — which was struck again on 4 March — and has been rerouting crude loadings to the Red Sea port of Yanbu. In the UAE, state giant ADNOC shut the 922,000-bpd Ruwais refinery after a drone strike caused a fire, while a separate blaze broke out at the Fujairah port, a key global oil storage hub. Bahrain’s Bapco Energies declared force majeure after an attack on its Sitra refinery. Middle East refiners have collectively slashed 1.9 million barrels per day of crude refining capacity as a direct result of the conflict, according to consultants IIR.
Israeli strikes have also hit multiple Iranian fuel depots and Kharg Island, Tehran’s main oil export outlet, though the full extent of damage remains unclear.
Shipping paralysed
Major marine insurers are cancelling war-risk coverage for vessels operating in Iranian, Gulf and adjacent waters. President Donald Trump has repeatedly said the U.S. Navy could escort tankers through the strait, but the Navy has so far declined industry requests, citing excessive risk. Trump has directed a U.S. government finance body to provide political-risk insurance and financial guarantees for Gulf shipping, though shipowners and analysts have expressed doubt that the measure will prove sufficient. Bunker costs at key Asian ports have surged to record highs, leaving some vessels struggling to refuel.
Consumer impact spreads
The shock is rippling outward. Asian refineries have cut throughput or declared force majeure due to shortages of feedstocks including naphtha. India, the world’s second-largest importer of liquefied petroleum gas, on Wednesday urged consumers not to panic and to conserve energy. South Korea announced it would cap domestic fuel prices to curb spikes and discourage panic buying. Bangladesh said it would close universities from Monday and bring forward Eid al-Fitr holidays to save electricity. Vietnam plans to suspend fuel import tariffs until the end of April, while European Commission President Ursula von der Leyen said the bloc was considering capping gas prices for consumers.
(Reuters)
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