"This Summer Is Critical"... Warning of Energy Crisis Triggered by Middle East War

International Energy Agency Warns of Summer Energy Crisis

Rising Air Conditioning and Air Travel Demand to Increase Summer Oil Supply Pressures

"Economic Recession Possible If Strait of Hormuz Remains Closed"

There are projections that the global energy crisis stemming from the Iran war will reach a critical point this summer.

Photo for article comprehension. Photo by AP Yonhap News

According to Yonhap News Agency on May 17 (local time), citing the UK daily Financial Times (FT), the Strait of Hormuz, which has been effectively blockaded by Iran, was the world’s largest energy transportation route before the war, with an average of 20 million barrels of crude oil and petroleum products passing through daily, accounting for about 20% of global maritime oil trade. It is a key export route for major oil-producing countries such as Saudi Arabia, the United Arab Emirates (UAE), Iraq, Kuwait, Qatar, and Iran. Although Saudi Arabia and the UAE possess pipelines that bypass the Strait, their capacity is limited to 3.5 to 5.5 million barrels per day, which is only about 35% of the usual shipping volume.

According to the International Energy Agency (IEA), since the outbreak of the Iran war, 76 countries have introduced emergency measures to protect their economies, up from 55 countries at the end of March. Oil market experts warn that if oil stranded in the Strait of Hormuz cannot find alternative routes, a sharp price spike could occur again this summer. This is because the demand for crude oil and refined products could increase further due to higher air conditioning usage and vacation air travel in the Northern Hemisphere summer, thereby exacerbating supply pressures.

The IEA estimates that from March to June, global oil consumption will exceed production by about 6 million barrels per day on average. Although more than 2 million barrels per day of strategic reserves are being released, a considerable portion of this release is scheduled to end by late July. Since the outbreak of the war, global inventories have fallen by nearly 380 million barrels. In March, the IEA and its member countries agreed to release 400 million barrels of emergency reserves in a coordinated action.

Fatih Birol, Executive Director of the IEA, described this crisis as "the greatest energy security threat in history," stating, "Releasing reserves may ease the pain, but it is not a solution. The cure is to reopen the Strait of Hormuz."

According to the FT, experts explain that most of the more than 3 billion barrels of oil in storage are tied up as minimum operational requirements for maintaining pipeline pressure, continuous refinery operation, and protecting storage tanks. As a result, there are concerns that the market could be paralyzed well before inventories are depleted to zero.

Ships in the Strait of Hormuz. Photo by Reuters Yonhap News

Not only oil, but also liquefied natural gas (LNG) supplies are being impacted. According to the IEA, LNG supplies from Qatar and the UAE have decreased by more than 300 million cubic meters (㎥) per day, resulting in weekly supply losses of over 2 billion ㎥. As about 20% of global LNG trade passes through the Strait of Hormuz, prices are surging—especially in the Asian gas market—and some countries have implemented gas rationing systems.

There are also concerns that the energy crisis could push the global economy into recession. Paul Diggle, Chief Economist at fund management firm abrdn, stated, "We are examining the possibility of soaring inflation and a recession in Europe and Asia if Brent crude rises to $180 per barrel (approximately 249,000 won)." Apostolos Tzitzikostas, European Union (EU) Transport Commissioner, said on May 14, "If the war does not end within a few weeks and the Strait of Hormuz is not reopened, a global economic recession is also a possibility."

This content was produced with the assistance of AI translation services.