Iran Conflict Intensifies: Global Oil Inventories in Danger

Fatih Birol of the International Energy Agency warns of rapidly depleting global oil inventories due to the ongoing war in Iran and the closure of the Strait of Hormuz. Strategic reserves have been tapped, but the supply-demand gap persists, putting pressure on global oil supply chains and highlighting market disparities.

Fatih Birol, head of the International Energy Agency, highlighted concerns on Monday over the rapid depletion of commercial oil inventories, a consequence of the Iran conflict and the Strait of Hormuz closure affecting shipping routes. Speaking in Paris at the Group of Seven finance leaders meeting, Birol explained that while strategic oil reserves had temporarily supplemented the market with an additional 2.5 million barrels per day, the reserves are limited.

The spring planting and summer travel seasons in the northern hemisphere are expected to accelerate demand for fuels such as diesel, fertilizer, jet fuel, and gasoline, leading to a quicker drain on limited oil inventories. During the G7 meeting, Birol observed a 'perception gap' between physical and financial oil markets.

Before February's U.S. and Israeli attacks on Iran, a surplus existed in oil markets. However, the escalation of conflict has significantly altered the situation. Last week, the IEA reported an unprecedented pace of inventory depletion due to the Iran conflict, with a record drop of 246 million barrels in March and April. The IEA coordinated the largest-ever strategic reserve release in March, but projections suggest global oil supply will fall by 3.9 million barrels per day across 2026, contrasting their earlier forecast.