Explainer: How the Iran war oil and gas shock compares to past disruptions

The U.S.-Israeli war with Iran and the closure of the Strait of Hormuz have triggered the largest oil supply disruption ever recorded in terms of daily output losses. However, Reuters calculations show that at least one past crisis had a greater cumulative impact over time.

The International Energy Agency (IEA) said on Tuesday (21 April) that the conflict is the worst energy crisis the world has faced, when combined with the tail end of the European gas crisis caused by Russia's invasion of Ukraine in 2022.

The scale of the disruption has revived comparisons with past energy shocks, from the 1973 Arab oil embargo to the Iranian Revolution and the 1991 Gulf War, while underscoring how much global energy markets have changed.

Different kind of energy shock

Unlike earlier crises, the Iran war has simultaneously hit crude, natural gas, refined fuel and fertiliser supplies, exposing new vulnerabilities created by decades of rising demand, deeper global trade links and the Middle East’s expanded role as a supplier of finished fuels.

Earlier energy shocks of the 1970s caused lasting economic damage, weakened governments and remain etched in the memory of citizens in industrialised nations such as the United States, which faced months of fuel supply shortages and queues at the gas pumps.

The IEA was established in the wake of the Arab oil embargo to advise industrialised countries on energy supply and security.

The IEA also manages its members' emergency oil stocks and has responded to the crisis by releasing a record 400 million barrels from strategic stockpiles to stabilise oil prices and offset lost Middle Eastern supply.

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How does the current disruption compare by scale?

The peak supply loss from the current crisis stands at more than 12 million barrels per day, the IEA said earlier this month. That is equivalent to 11.5% of global oil demand, which this year is expected to average around 104.3 million bpd.

The outright daily supply loss is larger than earlier peak supply losses of 4.5 million bpd during the 1973-74 Arab oil embargo and of 5.6 million bpd during the Iranian Revolution in 1978-79 combined, the IEA said.

It is also higher than the estimated peak supply losses of 4.3 million bpd during the 1991 Gulf War, according to the IEA.

The Iran war has also triggered the shutdown of roughly a fifth of the world's liquefied natural gas production in Qatar.

The world consumes much more gas than it did during the oil shocks of the 1970s-1990s. During the Arab oil embargo and the Iranian Revolution, the LNG industry was nascent. Qatar first exported LNG in 1996.

The current disruption also extends beyond crude and gas into fuel markets. The U.S.-Israeli war on Iran has disrupted millions of barrels per day of fuel production and exports from refineries in the Gulf. 

How do duration and losses compare with past shocks?

The IEA did not immediately respond to a Reuters request for comment on how the current disruption compares with earlier energy shocks in terms of cumulative supply losses.

In the absence of official comparisons, Reuters assessed cumulative losses by calculating the scale and duration of major supply disruptions.

Based on that approach, the current conflict has lasted 52 days and removed an estimated 624 million barrels from the market, assuming a loss of 12 million barrels per day over that period, according to Reuters calculations.

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Even if a peace deal is reached, supply disruptions are expected to persist for months and, in the case of gas, for years, pushing the final cumulative impact significantly higher.

The IEA says the 1978-79 Iranian Revolution resulted in a peak loss of 5.6 million bpd, smaller in scale than the current disruption. The revolution, however, led to a larger cumulative loss, according to Reuters calculations.

During this crisis, the countries with spare capacity - Saudi Arabia, the United Arab Emirates have been unable to compensate - because they themselves have been hit by the halt in shipments through the Strait of Hormuz.

Shortages in Asia, Africa

The current crisis has played out initially in shortages of supply to Asia and Africa. Top oil consumer the United States was much harder hit by the Arab oil embargo, which led to motorists enduring long lines for gasoline.

The disruption lasted months and sparked an overhaul of energy policy and a rethinking of what constituted energy supply security.

The 1991 Gulf War disrupted oil output for about four months, resulting in a cumulative loss of at least 516 million barrels based on Reuters calculations. This total is smaller than both the current crisis and the Arab oil embargo when measured by overall supply impact.

Tags

energy crisis Global Oil markets The International Energy Agency Iran war Middle East conflict Oil supply disruption Gulf Israel Strait of Hormuz