War in Iran triggers an unprecedented disruption in global oil

Iran War Triggers Unprecedented Disruption to Global Oil

By Claire Cameron edited by Andrea Thompson

The war in Iran has reduced global oil supplies to a minimum, the International Energy Agency said in a new report released Thursday. According to the organization, which tracks and helps set policy for the global energy sector, the spread of conflict in the region has created an unprecedented disruption in the global oil market – one that will almost certainly lead to increased costs of energy and other fuel-dependent costs.

Importantly, the agency said the diesel and jet fuel markets are “particularly vulnerable” to the effects of war on fossil fuel production in the Middle East.

The reason Iran has such a strong hold on fossil fuels has to do with a geological quirk. The country sits atop where the Arabian tectonic plate crashes into the Eurasian plate. This continental collision gave rise to the Zagros Mountains, which sink into the Arabian plate in such a way as to create a basin in the Earth’s crust that traps hydrocarbons, hence all that oil and gas. The region contains about 12 percent of the world’s oil, according to an estimate for 2024.

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About a fifth of the world’s oil and liquid natural gas shipments pass through a narrow strip of sea called the Strait of Hormuz, which separates the Persian Gulf and the Gulf of Oman. Iran effectively controls the strait, and when the United States and Israel started war on February 28, Tehran closed the waterway.

Global oil supplies are expected to fall by eight million barrels per day in March, the IEA said, while the region’s liquefied natural gas and gasoline production facilities have also virtually ceased production. The oil loss will be offset somewhat by the decision by the IEA’s 32 member countries to release 400 million barrels of oil from their emergency reserves – the largest such disbursement ever in the organization’s history, but just enough to cover a few weeks of lost deliveries in the Strait of Hormuz.

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