A New Global Energy Emergency Has Begun
Every nation is exposed
While US President Trump rips up the skeleton deal to end the Iran conflict, throwing the Middle East back into a state of war, a few thousand miles away, a fuel crisis is developing in Russia. The Kremlin has banned diesel exports and is seeking oil from Kazakhstan as videos circulate of Russians fighting over fuel at gas stations.
For at least two weeks, markets have observed a rapid fall in energy prices, with oil dropping to $70/barrel after peaking at around $120/barrel, signaling to some that an oil glut may be forming as massive supply drops onto the world market.
This is a shift that I have been extremely skeptical about, largely because I have doubted the US-Iran deal - technically an MoU - from the beginning. The doubt stemmed from Iran’s insistence it would charge tolls in the Strait of Hormuz, which America has outright rejected, and equally significant, the dozens of mines Iran has laid down in the Strait of Hormuz, which could take months to clear. As long as those mines remain, insurance firms will be extremely cautious to underwrite policies, limiting freighter movements.
Now, with the US-Iran war effectively restarting, likely to see Israel joining the fighting in the coming days, and throwing a dark shadow over Lebanon, energy movements through the Strait of Hormuz could (again) freeze.
But, in tandem, Ukraine’s bold drone strikes on Russia are igniting a separate energy emergency in Eurasia as Central Asia reels, Europe’s potential trade clash with China might cause Beijing to shutter clean energy exports to the continent (i.e., 100% of solar panels in Europe are Chinese) in the middle of a historic heatwave, and the previous energy crises that spread in Asia, where India called on citizens to work from home while South Korea mulled “car rationing” on roads, could very well be reignited.
This would make the previous energy crisis that began after February 28 look like a walk in the park.
The world may soon be gripped by multiple energy crises in different parts of the globe that together, push economies and societies to the brink. Adding to this, the backup oil reserves that provided cushion over the past few months are quickly being drained.
The US Strategic Oil Reserves, for example, are at their lowest level in 40 years. And those in an “insecure state,” like the Philippines, are turning to larger economies, like Japan, for oil aid, creating an additional layer of pressure for countries with vast reserves (i.e., Japan’s stockpiles could sustain the nation for around 250 days).
And, to make matters worse, as the Strait of Hormuz returns to being a battlefield, the knock-on effect will be amplified, namely global helium shortages critical for semiconductor production (around 25% of the world’s helium passes through Hormuz), and separately, food production as fertilizer costs surge or supply disappears (around 25%-35% of the world’s seaborne fertilizer flows through Hormuz). Remember, just a few months ago, the UK was preparing for food shortages as a worst-case scenario.
Unlike in the past, when there was hope for an offramp, today, there is zero clarity on how and when this war will end. Even the White House is reportedly preparing for a prolonged war over the Strait of Hormuz.
Should Iran unleash more devastating strikes, like the attacks on Qatar’s LNG facilities which have knocked (at least) 17% of the nation’s production offline for up to five years, the situation could rapidly deteriorate, potentially putting Arab states in a similar state as Russia, requiring energy assistance, and creating a separate headache as Arab capitals fume at the US and Israel and the cracking of the regional economy.
Of course, in the current geopolitical climate, nothing is guaranteed. Tomorrow, the US could very well signal a fresh round of talks with Iran. The next day, renewed fighting. But unless a clear direction to resolution is set, the back-and-forth is not sustainable. Energy supplies are drying up and new inventory is struggling to reach buyers. A new phase of the US-Iran war is beginning, and the outcome may not just be an energy crisis or emergency, but the opening acts of an energy war, as governments move the chess pieces to secure the nation.
Have questions or ideas? Let’s talk: abishur at mrgeopolitics dot com
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