Could the Iran war shrink global oil demand for good?

With the average price of gasoline in the United States above $4.50 a gallon — an increase of about 40 percent since the war in Iran began in late February — Americans are getting into their cars less often and instead boarding trains and buses. It’s the largest oil supply disruption in history, with U.S. drivers paying $45 billion more for gasoline and diesel than last year. According to a survey conducted at the end of April by ABC News, the Washington Post and Ipsos, approximately 44% of American adults say they have reduced their car trips due to the high price of gasoline.

Cities across the country have seen increasing numbers of people using public transportation, from Cincinnati to Los Angeles. Sales of used electric vehicles and hybrid cars have increased significantly in recent months. People are replacing car travel with bikes and scooters; railroads like Amtrak reported more passengers than usual. Much of America is built around highways and suburbs, making alternative transportation difficult. So, many people are reducing their driving time without abandoning their vehicle, by carpooling, consolidating their shopping or working remotely more often.

Some experts say this could be the start of a global green shift, even if most Americans eventually get back into their cars. Indeed, the crisis is hitting hardest in Asia, which was expected to be responsible for almost all of the growth in oil and gas consumption over the coming decades but is now rethinking its reliance on fossil fuels.

“If Asia turns around and says, ‘No, we’re not going to grow with fossil fuels, we’re going to grow with electrotechnology,’ that means fossil fuels will peak, and sooner than we think,” said Daan Walter, who leads strategic research on the future of energy at the think tank Ember. “It’s very likely that if this crisis continues to be as bad as it is, and we see this conversion happening, we are currently living in the peak year for oil, and this demand will never return to the level it was right before the Hormuz shutdown.”

With about 20 percent of global oil shipments stuck in the Strait of Hormuz, households and industries have found ways to use less. This can create what economists call “demand destruction” for oil – meaning the world simply won’t need it as much as it used to. The phenomenon is already happening all over the world, according to the International Energy Agency. Last week, the agency reiterated that oil demand was being destroyed, forecasting a contraction of 420,000 barrels per day this year. It’s a glimmer of hope in an otherwise bleak situation: price spikes caused by the Middle East conflict are pushing people away from fossil fuels.

While people sometimes use “demand destruction” as a dramatic way of referring to a short-term decline in demand, the phrase more accurately describes a more profound economic change. “To me, the term demand destruction only really makes sense if you talk about it in a longer-term context. For example, it really destroyed the source of demand,” said Kenneth Gillingham, a professor of environmental and energy economics at Yale University.

The destruction of global oil demand has been concentrated in Asia rather than the United States, where the country’s overall wealth allows people to pay more for fuel than most anywhere else in the world, even as it strains the budgets of low- and middle-income Americans. Japan’s factories are producing fewer petrochemicals – demand for naphtha, used in making plastics and chemicals, fell by a quarter year-on-year – amplifying the “long-term downward trend” in the country’s oil demand, according to the International Energy Agency. Its report notes that demand for gasoline in South Korea has fallen by about 5 percent as prices at the pump have risen, suggesting that behavioral changes are also contributing to demand destruction. As the crisis in the Middle East deepened, South Korean President Lee Jae Myung called for a radical transition to renewable energy, saying: “Our future will be seriously threatened if we continue to rely on fossil fuels.”

Countries and companies are also reducing their oil consumption in response to the crisis. Pakistan, the Philippines and Sri Lanka have all introduced the four-day working week to encourage reduced commuting.

It remains an open question to what extent these fuel economy adjustments last. President Donald Trump has promised that oil prices will “fall like a rock” once the war in Iran ends. But even after transportation through the Strait of Hormuz resumes, oil supplies could remain tight for months while facilities are repaired and wells restart. The war in Iran is also the second oil shock in recent years, after Russia’s invasion of Ukraine in 2022, and experts say this type of oil crisis is more likely to lead to a prolonged drop in demand.

“If prices are low for a very, very long time, and then you get a shock, it’s easy to dismiss it as no big deal and won’t happen again. But if you keep getting shocks, then you say, ‘Maybe I should really start thinking about making changes,'” Gillingham said.

An Ember report, co-authored by Walter, argues that the “double fossil shock” of the 2020s opens up new policy possibilities, just as the double oil shock of the 1970s prompted investment in energy efficiency and nuclear power. “The parallels with the oil shocks of the 1970s are striking. But so is the difference,” the authors write. “For the first time, there are scalable, cost-competitive alternatives. Solar, wind, batteries, electric vehicles and other electrotechnologies offer a permanent path away from fossil dependence.”

The report predicts that Asia, hardest hit by the current oil crisis, will accelerate electrification, shift to electric vehicles and eliminate liquefied natural gas from power generation. First sign that could already be happening: after the start of the bombing campaign in March, Chinese exports of solar vehicles, batteries and electric vehicles surged.

“It really shakes countries and businesses around the world out of this complacency of thinking that there is a path to a stable, normal fossil fuel system,” Walter said. “Reliance on imports is just incredibly risky right now, and the second crisis kind of confirms that. »

And some of the new habits adopted during the oil crisis could persist. “A shock like a big increase in gasoline prices, or an earthquake that closes a highway, is really helpful in getting people to change their behavior,” said Susan Handy, a professor of environmental science and policy at the University of California, Davis. “It’s really hard to get people to change their behavior without these kinds of shocks – not that we want these things to happen, but that’s what drives behavior change. » For example, when a bridge that collapsed reopens, most people start driving again, but some of them keep their new biking routine, she said.

So what determines whether a habit sticks? It depends on what people like, Handy said. People might find that they enjoy cycling around town or reading on the bus, rather than sitting behind the wheel in traffic, once they have reason to try it. “I think there are probably more alternatives than people think, or the alternatives may be better than people think,” Handy said. Rising prices may also cause people to switch to more energy-efficient vehicles or appliances, forcing them to reduce their fuel consumption in the future.

Of course, Americans still drive a lot – and probably will continue to do so. “We’ve seen oil prices go up and down many times throughout our history, even in recent history,” Gillingham said. “In general, these short-term behaviors tend to return to where they were before.”

But globally, it seems increasingly likely that the second oil crisis in half a decade, at a time when alternatives to fossil fuels are becoming cheaper and more widespread, could lead to more lasting changes, accelerating the decline of oil – and the rise of cleaner substitutes. As author Rebecca Solnit wrote in a recent newsletter: “What if, a decade or a century from now, people remember this moment as the moment when the world actually turned away from this dirty, corrupting, unreliable, destructive resource?” »