Global oil demand will contract for the first time post-pandemic, triggered by the oil shock unleashed in the West Asia war, the International Energy Agency (IEA) has warned.
“The Iran war has thoroughly upended the global outlook for oil consumption,” the IEA said in its monthly report. “Demand destruction will spread as scarcity and higher prices persist.”
The report published on Tuesday showed that the global demand growth of 730,000 barrels a day expected previously has been erased, and consumption will now contract by a marginal 80,000 barrels a day.
While the deepest cuts in oil use have come in the West Asia and Asia Pacific initially, mainly for naphtha, LPG and jet fuel, the demand destruction will spread as scarcity and higher prices persist, the Paris-based agency noted.
The US-Israel aggression on Iran has choked off oil flows through the Persian Gulf’s Strait of Hormuz, triggering what the IEA called the biggest supply disruption in history.
Surging prices for physical crude and products such as jet fuel, diesel and gasoline are squeezing consumers and taking a toll on demand. In India, retail prices are frozen despite soaring crude prices, even as many analysts predict the Modi government is delaying the inevitable to avoid political backlash before crucial state elections, such as in Bengal.
“Resuming flows through the Strait of Hormuz remains the single most important variable in easing the pressure on energy supplies, prices and the global economy,” the report said. The agency also observed that the difference between spot and future prices is expanding.
“With oil-importing nations scrambling to source replacement barrels from an increasingly shrinking pool of supply, physical crude oil prices surged to record levels near $150/barrel, far above the prices in futures markets, with the physical-futures disconnect becoming increasingly acute,” the report observed.
Russia Impact
Ukraine’s drone strikes on key Russian oil-export facilities in the Baltic and Black seas may put India’s crude-refining operations at risk in the near future, Bloomberg reported, quoting an IEA report.
Last year, 80 per cent of Russian crude imports to India originated from three major ports — Primorsk, Ust-Luga and Novorossiysk — that have recently become regular targets of Ukrainian drones.
“Any prolonged disruption to Russian port availability could significantly affect Indian refining operations in the coming weeks,” according to the report.
Imports from Russia averaged 1.98 million barrels a day in March, the highest since June 2023, according to data from intelligence firm Kpler.
Since the war in West Asia began, the world’s third-largest oil importer has faced energy shortages, surging prices and the prospect of slower growth. Russian oil flows have become a lifeline for the Indian refiners, while alternative barrels, including from Iran, have had limited success.