World faces largest-ever oil supply disruption, warns IEA

• The war in the Middle East is creating the largest supply disruption in the history of the global oil market, warned the International Energy Agency’s  (IEA) Oil Market Report.

• Oil prices have gyrated wildly since the United States and Israel launched joint air strikes on Iran on February 28. 

• Disruptions to Middle Eastern supplies due to attacks on the region’s oil infrastructure and the cessation of tanker traffic through the Strait of Hormuz sent Brent crude futures soaring.

• The Strait of Hormuz between the Persian Gulf and Arabian Sea is a critical waterway for a fifth of global oil and liquefied natural gas (LNG) supplies.

Key points of IEA report:

• With crude and oil product flows through the Strait of Hormuz plunging from around 20 million barrels per day (mb/d) before the war to a trickle currently, limited capacity available to bypass the crucial waterway, and storage filling up, Gulf countries have cut total oil production by at least 10 mb/d. 

• In the absence of a rapid resumption of shipping flows, supply losses are set to increase.

• Global oil supply is projected to plunge by 8 mb/d in March, with curtailments in the Middle East partly offset by higher output from non-OPEC+ producers, Kazakhstan and Russia following disruptions at the start of the year. 

• The conflict is also having a significant impact on global product markets, with export flows through the Strait at a near standstill. 

• Gulf producers exported 3.3 mb/d of refined products and 1.5 mb/d of LPG in 2025. 

• More than 3 mb/d of refining capacity in the region has already shut due to attacks and a lack of viable export outlets.

• Widespread flight cancellations in the Middle East and large-scale disruptions to LPG supplies are expected to curb global oil demand by around 1 mb/d during March and April compared to previous estimates. 

• Higher oil prices and a more precarious outlook for the global economy pose further risks to the forecast.

• Oil from the IEA emergency reserves will soon start flowing to global markets following the announcement that IEA Member countries will make 400 million barrels of oil available to the market in response to the disruptions resulting from the Middle East conflict.

• This emergency collective action, by far the largest ever, provides a significant and welcome buffer. 

• But the most important factor in ensuring a return to stable flows is the resumption of regular transit of shipping through the Strait of Hormuz. 

• Adequate insurance mechanisms and physical protection for shipping are key to the resumption of flows.

(The author is a trainer for Civil Services aspirants.)