The biggest energy supply shock in history has reached the one-month mark. 2% of global energy supplies have been impacted.
Fatih Birol, head of the International Energy Agency, summed up the Iran crisis at the end of last month:
“The situation is very severe. We lost 5 million barrels/day (mbd) of oil in the 1973 and 1979 oil crises. Today, we’ve lost 11mbd, so more than those two major shocks put together.
“After the Russian invasion of Ukraine, we lost 75 billion cubic metres (bcm). In this crisis we lost about 140 bcm.
“This crisis, as it stands now, is two oil crises and one gas crisis put all together.”
The world has never suffered a crisis that involved both oil and gas before. Nor has it suffered a crisis that involved wartime damage to energy industry plants before, as Birol also notes:
“To date, at least “40 energy assets in nine countries across the region are severely or very severely damaged.”
It will take months, if not years, to rebuild the industry. As noted last week, QatarEnergy expect it “to take up to 5 years” to repair their Ras Laffan plants.
SECOND AND THIRD ORDER IMPACTS ARE STARTING TO OCCUR
Critically, the loss of oil and gas supplies is already having 2nd and 3rd order impacts on the global economy:
- Food supplies are being reduced due to the loss of fertiliser supply
- In turn, this is leading to higher prices in the shops
- Semiconductor output is being badly hit by the loss of helium supplies
- This will disrupt AI data centre rollout, PCs and smartphones
- Asian petrochemical supply is already reduced due to lack of oil and gas
- I.C.I.S. suggest operating rates outside China will drop to 51% in April
- Container availability is being reduced with ~140 vessels trapped in the Gulf
- Lack of availability and higher costs reduce Asian consumer product exports
EUROPEAN AIRLINES WARN OF FLIGHT CANCELLATIONS
Transport is at major risk. Shipping companies rely on bunker fuel, and as Lloyds List has headlined:
“Singapore bunker imports decline as arrivals from Kuwait evaporate.”
Airlines are also starting to warn on flight cancellations. Lufthansa’s CEO has told staff that:
“Dedicated teams have been tasked with drafting response strategies of varying intensity. In a more severe scenario, the airline could temporarily ground up to 40 aircraft, roughly 5 per cent of its total capacity.”
Ryanair, Europe’s largest airline, has also warned:
“The Strait of Hormuz has been closed for 30 days. If it remains closed for 60 or 90 days, then we’re all facing an unknown scenario, and we are certainly looking at maybe having to cancel 5%–10% of flights through May, June and July”.
IEA REPORT WARNS OF NEED FOR EMERGENCY MEASURES
Until now, most Western countries have been in the ‘phoney war’ part of the crisis. Ships that had sailed through the Strait were already on the water.
But Asian countries have already been impacted as the BBC reports:
“Most factories in Morbi, India’s ceramics hub in the western state of Gujarat, have shut down for nearly a month due to gas shortages triggered by the Iran war…. India’s ceramics industry is estimated to be worth about 750bn rupees ($8.1bn; £6bn), with Morbi at its core. The shutdown has hit around 400,000 workers linked to the sector.”
As Bloomberg reports: “The biggest oil supply shock in history has reached the one-month mark. Prices have surged, growth forecasts are being cut worldwide, and shortages are emerging across Asia, from Thailand to Pakistan.
“But the energy industry is warning that the crisis is only beginning.”
A new Report from the International Energy Agency“10 Immediate actions to reduce demand”, as the top chart shows:
“1. Work from home where possible
“2. Reduce highway speed limits by at least 10 km/h
“3. Encourage public transport
“4. Alternate private car access to roads in large cities on different days
“5. Increase car sharing and adopt efficient driving practices
“6. Efficient driving for road commercial vehicles and delivery of goods
“7. Divert LPG use from transport to cooking
“8. Avoid air travel where alternative options exist
“9. Where possible, switch to other modern cooking solutions
“10. Leverage flexibility with petrochemical feedstocks and implement short-term efficiency and maintenance measures
We are likely entering a very difficult few months. As the IEA warns, major changes in our lifestyles will be needed unless the war ends soon and the Strait of Hormuz reopens.