The International Energy Agency (IEA) reported that the ongoing conflict in West Asia has led to the largest supply disruption in the history of the global oil market. Oil-producing countries in the Gulf have reduced production by at least 10 million barrels per day due to limited capacity to reroute shipments and filling storage facilities. The report warned that unless tanker traffic in the strategic waterway resumes quickly, supply losses could worsen.
Crude and petroleum product flows through the Strait of Hormuz have significantly decreased from around 20 million barrels per day before the conflict to minimal levels, impacting global supply chains. The IEA estimates a potential global oil supply decline of about 8 million barrels per day in March, with some offset from increased output by non-OPEC+ producers like Kazakhstan and Russia. Major supply cuts are observed in Iraq, Qatar, Kuwait, the United Arab Emirates, and Saudi Arabia as storage tanks reach capacity and exports slow down.
The conflict has not only affected oil markets but also disrupted refined fuel markets. Export flows of petroleum products through the Strait have nearly halted, and over 3 million barrels per day of refining capacity in the Gulf region have shut down due to attacks and limited export routes. This disruption is also impacting demand, with flight cancellations and LPG supply interruptions potentially reducing global oil demand by about 1 million barrels per day in March and April.
Member countries of the International Energy Agency recently agreed to release 400 million barrels of oil from emergency reserves to stabilize markets. Despite the disruptions, global oil inventories are relatively strong at over 8.2 billion barrels, the highest level since early 2021, providing a buffer against supply disruptions.
