Oil shortage warning! IEA: April is dangerous, considering releasing strategic reserves again

IEA Director-General Fatih Birol issues the latest warning: starting this month, the oil supply shortage that has driven a sharp rise in oil prices since the outbreak of the conflict will further worsen. The IEA is currently assessing whether it needs to tap additional oil reserves to ease the impact of the oil price surge.

Iran’s conflict has entered its fifth week, and the main global maritime oil route—the Strait of Hormuz—remains basically closed. Last month, member countries of the IEA agreed to release about 20% of their total reserves, easing market energy-supply risks.

The test has just begun

Birol said in a program hosted by Nikolai Tangen, CEO of Norges Bank Investment Management, that the energy crisis triggered by the U.S.-Iran conflict is the most severe in history. “The situation in April will be far worse than in March.”

He explained that in March, some oil and gas tankers that had already set sail before the war broke out were still arriving at ports one after another. “These ships are still heading to ports, transporting oil, energy, and other supplies,” he said. “But in April, there will be no oil to ship. The oil supply gap in April will be twice that of March. In addition, there will be disruptions in the supply of liquefied natural gas and other products. This will intensify inflation. I think it will weigh on economic growth in many countries, especially emerging economies. Many countries may soon face energy rationing.”

Notably, preliminary data released on March 31 by Eurostat shows that, driven by the Middle East conflict pushing up energy prices, the euro area’s March inflation rate was 2.5% year-on-year, and market pricing for the European Central Bank to restart rate hikes this month is already close to being fully in place.

In a similar vein, Wael Sawan, CEO of Royal Dutch Shell, issued a comparable warning last week at the Cambridge Energy Week conference held in Houston, Texas in the United States: “South Asia is the first to be hit, then it spreads to Southeast Asia and Northeast Asia, and as April arrives, the impact on Europe will become even more pronounced.” Sawan warned governments not to take measures that could amplify the shock from supply interruptions, adding that without energy security, there is no national security.

On Tuesday, U.S. President Trump said that the U.S. military would evacuate Iran in “two or three weeks.” The news sparked a broad rebound in financial markets. But Birol said that the degree of supply shortage caused by this war—now in its fifth week—far exceeds every prior crisis following the 1970s crisis and the outbreak of the Russia-Ukraine conflict in 2022. “Looking back at the oil crises of 1973 and 1979—each time, there was a loss of about 5 million barrels of oil per day on average, which then pushed many countries into a global recession. And now, our average daily supply losses are 12 million barrels—more than the total of the first two crises.” He added that the losses in natural gas supply caused by the conflict and the blockade of key shipping chokepoints—the Strait of Hormuz—also exceed the market shortfall when Russia’s natural gas supply was interrupted four years ago. “The severity of the current crisis exceeds the total of those three crises. In addition, petrochemical products, fertilizers, and sulfur—many other key commodities that are crucial to global supply chains. We are facing an unprecedented major supply disruption.”

Birol said: “We have advised governments in multiple countries to implement demand-side measures.” Birol said that the recommendations the agency has put forward to member countries include encouraging people to work from home, reducing car speed limits, and providing financial support to vulnerable groups.

Further reserve releases

As the conflict in the Middle East continues, the IEA is preparing to release strategic oil reserves again. “We assess market conditions around the clock—daily (even hourly). If we believe it is necessary, we are very likely to propose (further reserve releases),” Birol said. “The most pressing issue right now is a shortage of jet fuel and diesel; this has already become a major challenge for Asia. And soon—either in April or the beginning of May—Europe will also face this problem.”

After multiple rounds of negotiations, the IEA’s 32 member countries agreed last month to release a record 400 million barrels of oil from emergency reserves, partially offsetting the supply disruption caused by the Iran war. “When the timing is right, I will make a decision and propose recommendations to governments.”

But he believes that releasing reserves again cannot cure the underlying problems in the energy market. “This can only ease the pain; it can’t solve it fundamentally,” Birol explained. “The fundamental solution is to reopen the Strait of Hormuz. We are only buying time, but I absolutely do not believe that releasing reserves can solve the problem.”

According to a report by CCTV News, the United States and Iran are discussing a potential agreement, which includes reopening the Strait of Hormuz by Iran in exchange for a ceasefire. It is said that it is still unclear whether the relevant discussions would be direct talks or conducted through intermediaries, and there is still substantial uncertainty about whether the agreement can be reached. However, on April 1, an Iranian Foreign Ministry spokesperson said that President Trump’s statements about Iran’s request for a ceasefire are false and baseless.

In a report released on Wednesday, a team of strategists led by Felix Puwarié at BCA Research wrote that although shipping through the Strait of Hormuz saw a rebound by late March, and slightly more than 25 vessels passed by the end of the month, the figure is still far below last year’s monthly average of 1,100 vessels.

Since February 28, when the United States and Israel launched attacks on Iran and triggered Iran’s retaliatory strikes in the Gulf region, oil prices have surged. During March, the global benchmark Brent crude price jumped by more than 60%, recording the largest one-month increase since the 1980s. The reason is that investors are increasingly worried about how the ongoing conflict in the Middle East will affect global oil supplies.

In a report sent to reporters from First Financial Daily, the Oxford Institute for Economic Research said that if the Strait of Hormuz cannot remain passable until May and geopolitical tensions continue to escalate, trade relationships will be disrupted throughout the second and third quarters. “While the U.S. temporarily delays military strikes to reach an agreement will tilt risks downward, it does not fundamentally change this assumption. This may be an initial step toward de-escalation, but there is still tremendous uncertainty about the developments that follow. It is too early to assume now that navigation through the strait will return to normal earlier than in the benchmark scenario.” The report projects that the average price of Brent crude in the second quarter will reach $114 per barrel.

（Source: First Financial Daily）