IEA Warns Oil Markets Could Enter 'Red Zone' Amid Depleting Stocks

Oil markets could soon enter a "red zone" as global stocks deplete and as demand picks up during the summer travel season, the head of the International Energy Agency warned on Thursday.

IEA Executive Director Fatih Birol said the single most important solution to the Iran war energy shock is a full and unconditional reopening of the strategically vital Strait of Hormuz.

If it fails to reopen and no new oil is coming online from the Middle East, an ongoing drawdown in global stockpiles combined with an uptick in demand during the summer travel season means oil markets "may be entering the red zone in July or August," Birol said, without elaborating further.

His comments came during a Chatham House session on the Strait of Hormuz crisis and global energy security.

The IEA has previously said the global market is facing the most severe disruption in its history. That's despite, Birol said, the market having benefitted from being in the "fortunate" position of entering the crisis with a surplus to help absorb the shock. These stocks, however, are now eroding, Birol said.

Typically, roughly 20% of the world's oil and liquefied natural gas passes through the Strait of Hormuz, but shipping traffic has virtually halted since U.S. and Israeli-led strikes against Iran started on Feb. 28.

The IEA chief said the "biggest pain of this crisis will be felt in developing Asia and Africa," adding that he was just as concerned about the impact of the Iran war on global food security as he was on energy security.

Birol warned it will likely take "a lot of time" for Middle East oil production and refining to return to pre-war levels, saying that the IEA stands "ready to act" to coordinate further strategic oil reserve releases if necessary.