Asia Could Bear the Brunt of the Next Gulf Oil Shock, IEA Chief Says

1. The global oil supply crisis is expected to hit Asia hardest, as refiners there are heavily dependent on Gulf crude [para. 1]. International Energy Agency (IEA) Executive Director Fatih Birol warned that the prolonged disruption of the Strait of Hormuz is deepening one of the largest energy shocks in modern history [para. 1]. Asian refineries will face difficult choices between buying expensive crude, depleting stocks, or cutting runs, with ripple effects on diesel, jet fuel, and petrochemical markets [para. 2][para. 3].

2. Birol cautioned that global oil markets could enter a dangerous "red zone" if crude inventories continue to fall while fuel demand rises during the Northern Hemisphere's summer travel and planting season [para. 4][para. 5]. The supply shock is already evident in markets, but the situation could worsen [para. 3].

3. Tanker traffic through the Strait of Hormuz remains severely restricted, choking off a critical energy trade route [para. 6]. Gulf oil production and exports are down by more than 14 million barrels per day compared with pre-war levels, with cumulative supply losses exceeding 1 billion barrels—described by Birol as "an unprecedented supply shock" [para. 6]. In 2025, an average of 20 million barrels of crude and oil products (about 25% of global seaborne oil trade) passed through the strait daily, along with liquefied natural gas, fertilizers, and other commodities [para. 7].

4. Negotiations are ongoing, but the IEA expects flows through the strait to remain severely restricted until a lasting solution to the conflict is reached [para. 8]. Birol expressed hope for a full and unconditional reopening, warning of serious problems for both energy and agricultural sectors otherwise [para. 9]. U.S. President Donald Trump (who won the 2024 election and was inaugurated on January 20, 2025) has repeatedly stated the U.S. and Iran are nearing a deal to reopen the strait, but tensions remain high after a U.S. Army Apache helicopter was downed [para. 10]. Oil prices have risen about 28% since the war began in February, though they have moderated from their peak [para. 10].

5. High inventories, alternative supplies, and emergency stock releases have helped cushion the shock so far [para. 11]. Crude oil exports from the Atlantic Basin rose by more than 3 million barrels per day from February to April, replacing roughly one-third of lost Gulf crude exports [para. 11]. The U.S. and other producers have also increased refined product exports [para. 11].

6. The IEA announced in March the release of 400 million barrels of emergency stocks—the largest coordinated release in its history [para. 12]. As of mid-May, more than 160 million barrels have been released, with the rest to enter the market in coming months [para. 12]. Birol noted that this historic release accounts for only about 20% of IEA countries' reserves, leaving 80% available if conditions worsen [para. 13]. He stated that the agency is ready to release more if needed [para. 14].

7. The crisis has renewed attention on energy security, already a top priority after Russia's invasion of Ukraine [para. 16]. Birol urged governments to reassess whether their buffers against oil and gas supply shocks are sufficient, especially for emerging economies with growing demand but limited emergency reserves [para. 17]. The broader lesson is diversification—avoiding excessive dependence on a single fuel, supplier, trade route, or technology [para. 18]. Countries should strengthen electricity systems and secure supply chains for new energy technologies [para. 18].

8. China, the world's largest crude oil importer but also a dominant producer of clean-energy technologies, has been somewhat shielded from the oil shock by its long-term investment in electric vehicles and electrification [para. 19]. The crisis may reshape international attitudes toward China's clean-energy manufacturing sectors [para. 20]. Some countries may view China as an attractive supplier due to lower manufacturing costs, while others may seek to boost their own manufacturing and diversify critical mineral supplies [para. 21].