Iran war's energy impact forces world to pay up, cut consumption
The effective closure of the Strait of Hormuz has stopped the passage of 20% of the world’s oil and liquefied natural gas since the U.S. and Israel began airstrikes on Iran on 28 February
The war in the Middle East has triggered a nightmare scenario for the global energy system, slashing so much supply that consumers around the world must both pay up big and lower consumption.
The effective closure of the Strait of Hormuz, a narrow channel along the Iranian coast, has stopped the passage of 20% of the world's oil and liquefied natural gas since the U.S. and Israel began airstrikes on Iran on 28 February.
Meanwhile, ongoing strikes by Iran and Israel have targeted Middle East energy infrastructure, doing damage to gas fields, oil refineries and terminals that industry representatives say will take years to repair.
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All of that adds up to what the International Energy Agency has already called the worst global energy disruption in history, eclipsing even the Arab oil embargo of 1973 that caused fuel shortages and triggered widespread economic damage.
"You're not going to conserve your way around this. What it's going to translate to is price rises high enough that people stop consuming," said Dan Pickering, chief investment officer for Pickering Energy Partners.
So far, the crisis has removed about 400 million barrels - about four days of world supply - from the market, triggering price increases of around 50%.
Oil, gas, and their refined byproducts are critical to many parts of the modern world, from fueling cars, trucks and planes, to powering homes and industry, to producing plastics and fertilisers.
"The breadth of what is at risk here in fuels, chemicals, LNG and fertiliser inputs is what makes this moment qualitatively different from previous episodes of Gulf tension," said Aditya Saraswat, senior vice president at consultancy Rystad Energy.
Energy price shocks also fuel inflation, hitting consumers and businesses hard. This has become a major political liability for U.S. President Donald Trump as he seeks to justify the war to the American public.
Trump has assailed NATO allies over their lack of support for the U.S.-Israeli war against Iran, calling the longtime U.S. allies "cowards."
Price shock
Global benchmark oil prices have already risen more than 50% to over $110 a barrel since the war started. The impacts are more pronounced for Middle East crudes – a staple for Asian economies – with prices hitting records near $164.
That has translated to soaring prices for transport fuels, pressuring consumers and businesses across the globe, and triggering government action to conserve supplies.
Thailand, for example, ordered civil servants to conserve energy by suspending overseas trips and using stairs instead of elevators, while Bangladesh closed its universities.
Sri Lanka has imposed fuel rationing, China has banned refined fuel exports, and the UK government's energy contingency plan includes a cut in speed limits to save fuel.
