Global energy crisis deepens as reserves hit historic lows amid Iran conflict

Key points

• The 25th World Petroleum Council Energy Congress and the 17th International Energy Forum Ministerial are taking place in Riyadh, Saudi Arabia, despite a Houthi attack on King Khalid International Airport that resulted in 12 deaths and 309 injuries.
• Fossil fuels remain the dominant energy source globally, accounting for 81 percent of consumption, with oil at 31.4 percent, coal at 25.9 percent, and natural gas at 23.5 percent.
• The Strait of Hormuz is a critical chokepoint with no alternative maritime route, previously handling 27 percent of global seaborne oil trade and 20 percent of liquefied natural gas trade.
• Eritrea and Madagascar are the most dependent on Middle Eastern oil, sourcing approximately 90 percent of their supply from the region, followed by Pakistan, Japan, and Kenya at 77-78 percent.
• The US Strategic Petroleum Reserve is at its lowest level since 1982, and the International Energy Agency is preparing to release an additional 100 million barrels of crude and diesel to mitigate soaring prices.
• China holds the largest emergency oil reserves at an estimated 1.4 billion barrels, followed by the US with 413 million barrels and Japan with 263 million barrels.

Background

This situation follows earlier warnings from Saudi Aramco CEO Amin Nasser that rebuilding global oil inventories could take up to two years after the conflict. Previous reports indicated that while crude flows through the Strait of Hormuz have normalized, refined product flows remain constrained, driving diesel prices to record highs. Additionally, Chevron CEO Mike Wirth warned against US diesel export bans, noting that global inventories remain critically low after being drained over several months. The current energy crisis is a continuation of the broader US-Israel military campaign against Iran, which has disrupted energy flows and forced governments to reassess energy security strategies.

Why it matters

The depletion of global emergency oil reserves and the constriction of key maritime chokepoints threaten to exacerbate inflation and economic instability worldwide. Countries with high dependence on Middle Eastern energy face significant risks of supply shortages and increased costs for essential goods. The inability to find alternative routes for oil and gas shipments, particularly through the Strait of Hormuz, highlights the vulnerability of the global energy system to geopolitical conflicts. As reserves dwindle, the potential for further price spikes and supply disruptions increases, impacting everything from transportation to manufacturing and electricity generation.

What to watch

The International Energy Agency is expected to release an additional 100 million barrels of crude and diesel to ease soaring prices, although some of this may be oil from previous releases that has not yet reached the market. Energy industry leaders warn that Western countries have little left to release, and the US Strategic Petroleum Reserve is at its lowest level since 1982. The situation may worsen if a storm in the Gulf of Mexico or further attacks in Saudi Arabia threaten supplies, keeping oil prices above $100 a barrel. Governments and energy companies will continue to seek alternative export routes and suppliers to mitigate the impact of the ongoing conflict and depleted reserves.