IEA Warns Global Oil Reserves May Last Only Weeks as Iran War Shuts Hormuz

Fatih Birol, Executive Director of the International Energy Agency, warned G7 finance leaders meeting in Paris on May 18 that global commercial oil inventories are depleting at a record pace and may only last several weeks. The crisis stems from U.S. and Israeli military strikes on Iran in late February, which prompted Iran to halt tanker traffic through the Strait of Hormuz, a chokepoint handling roughly 20% of the world's oil. The disruption has caused global supply to fall short of demand, with observed inventories dropping by 246 million barrels in March and April alone and over a billion barrels lost since the conflict began.

The IEA coordinated a record release of up to 426 million barrels from strategic reserves among its 32 member countries, adding 2.5 million barrels per day to the market. However, Birol cautioned that these reserves are not endless. OPEC reported a production drop of nearly 10 million barrels per day since the war began, with Saudi output falling more than 40 percent to its lowest level since 1990. Iran's Supreme National Security Council established the Persian Gulf Strait Authority to manage operations in the Strait of Hormuz, enforce Iranian sovereignty, and charge vessels for passage.

The economic fallout is spreading. European Commissioner Valdis Dombrovskis announced the EU will downgrade growth forecasts and raise inflation projections, calling the situation a stagflationary shock driven by oil prices above $100 per barrel. GDP has contracted in the euro-zone and Israel. Central banks in the U.S., U.K., and Canada are monitoring price pressures, while Ryanair executives warned that weaker European airlines may face bankruptcy from jet fuel costs. The IEA cautioned that physical shortages could hit Europe by the end of May, with diesel, gasoline, and jet fuel scarcity worsening as summer travel and spring planting seasons drive demand higher.