Global Energy Markets Strain Under Iran War Disruptions

The 25th World Petroleum Council Energy Congress has commenced in Riyadh, operating despite a recent Houthi attack on King Khalid International Airport that killed 12 people and injured 309. Saudi Arabia’s Ministry of Energy confirmed the event, part of Riyadh Energy Week running through Thursday, will proceed. The 17th International Energy Forum (IEF) Ministerial is scheduled alongside it; Italy will attend via video link while Nigeria sends a representative. The IEF unites 68 nations responsible for over 90 percent of global oil and gas supply and demand, including Saudi Arabia, the United States, and Russia. The gathering highlights growing concerns as the US-Israel war on Iran continues to disrupt energy flows.

Fossil fuels remain the dominant source of global energy, accounting for nearly 81 percent of consumption. Oil leads at 31.4 percent, followed by coal at 25.9 percent and natural gas at 23.5 percent. Production is heavily concentrated, with the Middle East leading oil output and North America dominating natural gas. Disruptions in these regions create immediate ripple effects across global markets.

Geographic chokepoints are critical to energy distribution. Prior to the current conflict, approximately 27 percent of global seaborne oil trade and nearly 20 percent of liquefied natural gas (LNG) trade passed through the Strait of Hormuz. On the western side of the Arabian Peninsula, the Bab al-Mandeb strait and the Suez Canal connect the Red Sea to the Gulf of Aden and the Mediterranean. However, escalating hostilities in Yemen and the broader Middle East have reduced traffic through these routes, forcing shipments onto longer pathways around Africa.

Richard Matthews, director of consultancy and research at London-based Gibson Shipbrokers, noted the uniqueness of the Strait of Hormuz situation. He stated there is no alternative maritime route, making the current constriction particularly significant for cargo volumes compared to other global chokepoints.

Dependency on Middle Eastern energy varies widely, creating disparate challenges for importers. Eritrea and Madagascar are the most reliant on Middle Eastern oil, sourcing roughly 90 percent of their supply from the region. Pakistan, Japan, and Kenya follow closely, each obtaining about 77 to 78 percent of their oil from the Gulf. Gas dependencies are similarly pronounced in Asia, with South Korea sourcing 31 percent, India 29 percent, Pakistan 27 percent, and Taiwan 26 percent from the Middle East.

Strategic petroleum reserves, once a reliable buffer, are now facing severe depletion. Western nations have limited capacity to release stocks, and the US Strategic Petroleum Reserve has dropped to its lowest level since 1982. Amin Nasser, head of Saudi Aramco, revealed at the Energy Intelligence Forum in London that fewer than 6 billion barrels of commercial inventories remain, with much of that stock not practically accessible.

The International Energy Agency (IEA) has already released a record 400 million barrels this March and is preparing an additional 100 million barrels of crude and diesel to combat soaring prices. Despite these efforts, a storm in the Gulf of Mexico and renewed attacks in Saudi Arabia continue to threaten supplies, keeping oil prices above $100 per barrel. Prior to this year’s releases, China held the largest reserves at an estimated 1.4 billion barrels, surpassing the United States (413 million barrels) and Japan (263 million barrels).