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

Ask AI · Why is the current oil crisis being called the most severe in history?

The IEA Director Fatih Birol issued a new warning that starting this month, the oil supply shortage that has driven oil prices sharply higher since the outbreak of conflict will worsen further. The IEA is currently assessing whether to further activate oil reserves to mitigate the impact of soaring prices.

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

The test has just begun

Fatih Birol stated on a program hosted by Norges Bank Investment Management CEO Nikolai Tangen that the energy crisis triggered by the US-Iran conflict is the most severe in history. “The situation in April will be much worse than in March.”

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

Notably, preliminary data released by the EU statistical office on March 31 shows that, driven by Middle Eastern conflicts pushing up energy prices, the eurozone’s March inflation rate was 2.5% year-on-year, and markets are close to fully pricing in the European Central Bank’s rate hikes this month.

Coincidentally, Shell CEO Wael Sawan warned at the Cambridge Energy Week conference in Houston, Texas last week: “South Asia is hit first, then the impact spreads to Southeast Asia and Northeast Asia, and with April coming, Europe will be affected more and more.” Sawan warned governments not to take measures that could amplify supply disruptions, adding that without energy security, there is no national security.

U.S. President Trump said on Tuesday that the U.S. military will withdraw from Iran “within two or three weeks,” which triggered a broad rebound in financial markets. But Birol said that the ongoing fifth-week war has caused supply shortages far exceeding those of the 1970s crises and the crises after the Russia-Ukraine conflict erupted in 2022. “Looking back at the oil crises of 1973 and 1979, each caused an average daily loss of about 5 million barrels of oil supply, leading many countries into a global recession. Today, our daily supply loss has reached 12 million barrels—more than the total of the previous two crises,” he added. The blockade of the conflict and key shipping routes through the Strait of Hormuz has also caused natural gas supply losses that surpass the market gap during Russia’s natural gas supply interruption four years ago. “The severity of the current crisis exceeds the sum of these three crises. Additionally, key commodities such as petrochemical products, fertilizers, sulfur, and other critical bulk goods—vital to the global supply chain—are affected. We are facing an unprecedented major supply disruption.”

Birol said, “We have recommended that many governments implement demand-side measures.” The agency’s suggestions to member countries include encouraging working from home, reducing car speed limits, and providing financial support to vulnerable groups.

Further Strategic Oil Reserves Release

As the Middle Eastern conflict continues, the IEA is considering releasing strategic oil reserves again. “We monitor market conditions around the clock, daily (or even hourly). If necessary, we are very likely to propose (further reserve releases),” Birol said. “The most urgent issues now are shortages of jet fuel and diesel; this is already the main challenge facing Asia, and soon, in April or early May, Europe will face the same problem.”

After multiple rounds of negotiations, last month, the 32 IEA member countries agreed to release a record 400 million barrels of oil from emergency reserves to partially offset the supply disruptions caused by the Iran conflict. “When the timing is right, I will make a decision and recommend to governments,” he said.

But he believes that further reserve releases cannot fundamentally solve the energy market problems. “This can only relieve the pain temporarily; it cannot cure the root cause,” Birol explained. “The real solution is to reopen the Strait of Hormuz. We are just buying time, but I do not believe that releasing reserves can solve the problem.”

According to CCTV News, the U.S. and Iran are discussing a potential agreement that includes a ceasefire in exchange for Iran reopening the Strait of Hormuz. It is unclear whether these discussions are direct or mediated, and whether an agreement can be reached remains uncertain. However, on April 1, Iran’s Foreign Ministry spokesperson said that U.S. President Trump’s claims about Iran requesting a ceasefire are false and baseless.

The strategy team at BCA Research, led by Felix Puaryer, wrote in a report released Wednesday that although shipping through the Strait of Hormuz increased slightly at the end of March, with just over 25 ships passing through, this is still far below the average of 1,100 ships per month last year.

Since the U.S.-Israel attack on Iran on February 28 triggered Iran’s retaliatory strikes in the Gulf region, oil prices have surged. During March, the global benchmark Brent crude oil price soared over 60%, marking the largest monthly increase since the 1980s. The reason is growing investor concern over the ongoing conflict in the Middle East affecting global oil supply.

The Oxford Economics Research Institute told First Financial Journal that if the Strait of Hormuz remains blocked until before May and geopolitical tensions escalate, trade disruptions will continue into the second and third quarters. “The U.S. delaying military action to reach an agreement may reduce risks temporarily, but it does not fundamentally change this scenario. This may be a preliminary step toward de-escalation, but there is still great uncertainty about the future. It is premature to assume that the strait will reopen earlier than the baseline scenario,” the report said. It projects Brent crude oil prices will average $114 per barrel in the second quarter.