Oil & Energy
Major Stock Draws, Alternative Suppliers Helped Avert Deeper Crisis After Hormuz Disruption, IEA Says
Significant inventory drawdowns, the emergence of alternative suppliers and routes, and other factors helped oil markets offset the shortfall caused by the disruption in the Strait of Hormuz, the International Energy Agency said Monday.The Iran war has resulted in a cumulative loss of over 1.3 billion barrels from Middle East producers, while flows from the Strait of Hormuz declined to an average of 2.7 million barrels per day in March, April, and May, compared with about 20 million b/d before the conflict, the agency said.According to the IEA's Oil Market Report published earlier in the month, global oil demand is projected to fall by around 5 million b/d in Q2 over the year and 1.1 million b/d on average for 2026. This compares with expectations of global demand growth of about 850,000 b/d before the beginning of the Iran war.While the fall in demand was far lower than the supply losses from the Gulf, other adjustments and responses played a crucial role, including the drawdown of inventories at record rates amid high oil prices and the IEA's largest-ever emergency release of 400 million barrels. Global oil inventories fell by 3.8 million b/d since the beginning of the conflict, the agency said.On the supply side, the use of alternate routes bypassing the Hormuz Strait by some Gulf producers, an increase in crude exports by other suppliers, especially the US, and the quick adjustments made by the global refining industry to compensate for lost Middle Eastern crude supplies and reduced fuel exports were among the other factors.Saudi Arabia quickly responded to the effective closure of the Strait of Hormuz by increasing crude exports through its East-West pipeline and the Red Sea port of Yanbu from 2 million b/d before the conflict to over 5 million b/d in early June, while also drawing on oil stocks held overseas, the IEA said.Meanwhile, the UAE has increased oil exports to 4.3 million b/d in early June from 1.9 million b/d in March, bringing them to nearly 85% of pre-war levels, using storage facilities, pipelines, and alternative shipping routes to maintain relatively high export levels despite severe disruptions.The crisis has triggered a major shift in global oil trade flows, with a major increase in supplies from producers outside the Middle East being shipped to Asia.Higher output from countries such as the US, Kazakhstan, Brazil, and Venezuela has supported this shift, with US crude and petroleum product exports rising to a record 13.1 million barrels per day in May, nearly 25% higher than a year earlier, the agency said.According to the IEA, another factor that provided a significant cushion against the immediate impact of the Iran war was the large market surplus heading into the conflict. In February, IEA had projected a surplus of 3.7 million b/d for 2026."Global oil supply had been running ahead of demand for 12 months, with the amount of oil in storage reaching 8.2 billion barrels. China, notably, had for many months been hoovering up huge amounts of oil imports and putting them in storage," the agency said.IEA noted that these factors reduced crude imports. "This, combined with demand reductions both by refiners and end-users, enabled China to slash crude oil imports by 40% - or 4.6 million barrels per day - between February and May, helping significantly to ease wider pressures in the global market," according to the note.
