Oil prices are still below their May highs, but the risk of a serious energy crisis is greater than at any time since the start of the Iran war. Four factors that have previously prevented the global economy from crashing have now been greatly weakened or have disappeared completely.
It is not the first time since the start of the Iran war that there has been alarm in the energy markets. Despite the recent increase, the global key prices for the oil market are still below their highs from the beginning of May this year, at a good $107 per barrel for the North Sea Brent and around $103 for the American WTI. But that cannot hide the fact that the risk of a serious energy crisis is greater than it has ever been since the beginning of the Iran war. Four factors that had acted as a safety net for months to prevent the global economy from collapsing into a crisis have now been greatly weakened or have disappeared completely.
Saudi Arabia's emergency exit is now blocked
With the blockade of the Strait of Hormuz at the end of February, around a quarter of global oil trade by sea was suddenly interrupted. However, part of this raw material, which is essential for the global economy, was able to be diverted to alternative routes. The most important of these routes was the Saudi east-west pipeline, which runs from the Persian Gulf to the country's west coast on the Red Sea.
Not only has this pipeline been severely damaged by an attack, reducing the supply of crude oil on the world market by a further four to five million barrels per day. At the same time, the Iran-allied Houthi militia has effectively blocked the southern exit of the Red Sea after gaining territory in Yemen. Even if the East-West pipeline is repaired, the only route available for Saudi exports is currently through the Suez Canal or via the Egyptian Sumed pipeline from the Red Sea to the Mediterranean. The capacity of this transport route is limited. It also represents a week-long detour for Saudi Arabia's urgently needed deliveries to Asian countries.
The situation is further exacerbated by the fact that shipping traffic through the Strait of Hormuz has fallen to its lowest level since May. After several attacks on freighters, an average of only around ten ships per day have recently passed through the strait.
Emergency reserves are emptying
To avoid a global oil price shock in the first months of the war, many countries drew on their reserves. This allowed them to reduce imports while keeping the economy going. China in particular has bought almost a quarter less crude oil on the world market since March. In a coordinated effort, the industrialized countries of the OECD released around 400 million barrels of oil from their strategic reserves. OECD reserves are now at a historic low. The U.S. petroleum reserve is at its lowest level since the 1980s. These emergency stocks are far from empty. But the ability of oil consumers to make up for a lack of supplies from the Middle East and thus keep price increases in check has declined significantly.
Ukraine hits Russia's refineries
In addition to the Iran war, Russia's war of aggression against Ukraine has recently had a more severe impact on the energy markets, or more precisely: the Ukrainian counterattacks on Russian refineries. According to estimates, almost 40 percent of oil processing capacity in Russia has now failed. In order to get the fuel shortage in the country under control, the Kremlin has imposed an export ban on diesel, among other things. As a result, supply on the global market is estimated to have fallen by up to 1.3 million barrels of diesel per day. At the same time, several large refineries in the Gulf have been virtually paralyzed for several months due to the blockade of the Strait of Hormuz. This causes fuel prices to rise even more than crude oil prices, especially diesel prices. While oil prices are still below their highs from the first months of the war, the lead contract for the diesel precursor gas oil on the European futures exchange ICE is now 50 percent above the level in May of this year.
Although Germany has not imported diesel directly from Russia for several years, it is now competing on the international market for a smaller supply in order to cover local demand.
Gas crisis before the European winter
From the beginning, the Iran War had a dramatic impact on the global market for liquid natural gas (LNG). The Gulf emirate of Qatar, with a market share of around 20 percent by far the most important LNG supplier in the world, was almost completely canceled. However, with the end of winter in the northern hemisphere, gas consumption also fell soon after the start of the war. In the hope that the war would not last long, natural gas storage facilities in many countries were barely filled. In addition to increased exports from the USA, this initially eased the situation on the market. Now, however, the next winter is just around the corner, the gas storage facilities in many places are more empty than they have been in years and an end to the war in the Gulf is not in sight. The European wholesale price has almost doubled again in the past two months and is now more than three times as high as before the start of the war.
