The oil market could enter a “red zone” with a supply shortage in “July or August” if a lasting solution to the Middle East conflict is not found, the executive director of the International Energy Agency, Fatih Birol, warned on Thursday, May 21.
“The problem is that at the end of June, beginning of July, the travel season starts, and generally, the demand for oil, oil consumption increases,” he explained during an event organized by the think tank Chatham House.
In response to this situation, the IEA director stated that the organization is ready to “act” to release more oil reserves “if countries decide.”
Release of 426 million barrels
To calm the markets, the 32 member countries of the organization had announced in March the coordinated release of 426 million barrels, more than a third of their strategic stocks, an unprecedented decision. However, according to the IEA, the paralysis of traffic in the Strait of Hormuz due to the war in the Middle East has already led to a loss of over a billion barrels of exports from Gulf producers, amounting to a daily loss of around 14 million barrels for the market.
In this situation, despite the strategic reserves already released, the IEA had already raised the alarm on May 13 about the “record” melting of oil reserves as the Middle East conflict continues.
Without a swift resolution to the conflict, oil prices could soar even higher. And notably, even if the Strait of Hormuz reopens, “it is unlikely that the price drop will be as significant as many hope,” says Arne Lohmann Rasmussen, analyst at Global Risk Management, citing the need to replenish global stocks and logistical issues to address.
