The Iran War oil and gas supply disruption compares to previous disruptions
According to calculations based on International Energy Agency data and U.S. Department of Energy, the U.S. and Israeli war against Iran and the closing of the Strait of Hormuz has caused the largest oil supply disruption in history by daily production lost. However, at least one previous shock had a larger cumulative impact.
The IEA stated on Tuesday that this conflict, combined with the end of the European Gas Crisis caused by Russia's invasion in Ukraine in 2022, is the worst energy crises the world has ever faced.
The disruption is reminiscent of past energy shocks such as the 1973 Arab Oil Embargo, the Iranian Revolution, and the 1991 Gulf War. It also highlights how global energy markets have evolved.
A DIFFERENT TYPE OF ENERGY SHOCK
The 'Iran war' has hit the crude oil, natural gas, refined fuel, and fertiliser supply simultaneously, unlike 'earlier crises. This exposes new vulnerabilities due to decades of increasing demand, deeper trade links, and Middle East as a major supplier of finished fuels.
Energy shocks in the 1970s left a lasting impact on the economy, weakening governments, and a long-lasting impression on the minds of people in industrialised countries like the United States. They experienced months of fuel shortages, and long queues at gas stations.
In the aftermath of the Arab Oil Embargo, the IEA was created to provide advice on energy security and supply for industrialised countries. The IEA manages the emergency oil stockpiles of its members and responded to the crisis with a record release of 400 million barrels.
How does the current disarray compare by?scale?
IEA reported earlier this month that the peak loss of supply from the current crisis is more than 12,000,000 barrels per day. This is equal to 11.5% global oil demand which is expected to be around 104.3 million barrels per day this year.
IEA stated that the daily supply?loss was greater than the peak supply losses during the Arab oil embargo in 1973-74 and the Iranian Revolution of 1978-79, which were 4.5 million bpd. The IEA also said that it is higher than estimated peak supply losses during the 1991 Gulf War of 4.3million bpd.
Qatar has shut down a fifth or so of its liquefied gas production due to the Iran war. Gas consumption is much higher than during the oil boom of the 1970s-1990s. The LNG industry was in its infancy during the Arab oil embargo, and the Iranian Revolution. Qatar first exported LNG ?in 1996.
This disruption extends to fuel markets as well. The U.S. and Israeli war against Iran has caused a disruption of millions of barrels of fuel per day in Gulf refineries, resulting in shortages of diesel and jet fuel. The 'global fuel supply' is dependent on the 'huge refineries that have been built in the Gulf over recent decades. Jet fuel is sent to Africa, Europe, and Asia.
How do the duration and losses compare with past shocks?
The International Energy Agency didn't immediately respond to an inquiry about how the current disruption compares to previous energy shocks, in terms of total supply losses.
Calculate the cumulative loss in the absence of official comparisons by measuring the magnitude and duration of major disruptions of supply.
According to calculations, if we use this approach, the conflict currently lasted 52-days and removed 624 million barrels of oil from the market.
Even if there is a quick peace agreement, the supply disruptions will likely last for several months, and in the case for gas, even for many years. This will increase the total impact of the conflict.
According to the IEA, the Iranian Revolution of 1978-79 resulted in a loss peak of 5.6 millions bpd. This is smaller than the 'current disruption. According to calculations, the revolution led to a greater cumulative loss.
The U.S. Department of Energy claims that the Iranian crude oil production dropped by an average of 3.9 millions barrels per day (bpd) between 1978 and 1981. This is a loss of 4.27 billion over three years, according to calculations. However, the Energy Department states that the Gulf countries compensated for a large part of this loss.
Saudi Arabia and the United Arab Emirates, which have spare capacity, have not been able to compensate for the crisis because they have also been affected by the suspension of shipments across the Strait of Hormuz.
According to Ian?Seymour, an oil journalist and author, Iran produced an average of 3.1 millions bpd?during the year 1979 as opposed to 6 million in late 1978. This resulted in a loss of more than 1 billion barrels for 1979.
Three months were needed for producers to achieve the full production cut of 4.5 millions bpd during the Arab oil embargo from 1973-1974. According to calculations, the embargo, which lasted between October 1973 and March 1974, resulted in a loss of production ranging from 530 to 650 million barrels. The Arab oil embargo had a cumulative impact comparable to that of the U.S. and Israeli war against Iran.
SHORTAGES IN ASIA AND AFRICAN
Initially, the current crisis was a result of a shortage in supply for Asia and Africa. The Arab oil embargo hit the United States, the world's largest oil consumer, much harder. This led to long gasoline lines. The Arab oil embargo lasted for months, and caused a major overhaul in energy policy.
According to a document issued by IEA-member Australia, the 1991 Gulf War disrupted oil production for four months. This resulted in a loss of 516 million barrels, based on calculations assuming losses of 4.3 million bpd. The cumulative losses are therefore smaller than those caused by the current crisis or the Arab oil embargo.
The Russian invasion of Ukraine 2022 caused a global energy shortage as European countries rushed to reduce their dependency on Russian oil.
According to the U.S. Energy Information Administration (EIA), the Russian oil production declined by 9% or approximately 1 million barrels per day in April 2022. This is a much smaller decline than the current disruption. Russia's production stabilised later in the year as Moscow rerouted its exports in order to counter Western sanctions. However, in 2026 Ukrainian drones are responsible for a drop in output. (Reporting and editing by Simon Webb, Howard Goller and Alex Lawler; correspondents Alex Lawler)
(source: Reuters)
