They went on a diet: what threatens the world with the destruction of oil demand
Five weeks after the start of the US-Israeli military campaign against Iran, something like stability has been established in the global energy market. Despite the actual blocking of the Strait of Hormuz, through which 20 million barrels of oil and petroleum products passed daily, the quotes of reference grades are kept near the $100 per barrel mark. Although forecasts of a rise in price to $150 have not yet been fulfilled, there is a less obvious threat that is less often mentioned — the destruction of demand due to unacceptable prices for consumers. What such a development of events can lead to is in the Izvestia article.
The Arsenal of Democracies
Keeping prices within a few hundred dollars, as noted by Bloomberg columnist Javier Blas, was made possible by three lines of defense that importing countries deployed in the first days of the conflict. First, the emergency expenditure of accumulated commercial reserves. Secondly, there was a logistical maneuver by Saudi Arabia and the United Arab Emirates, which redirected the maximum possible export volumes through bypass pipelines to the terminals of the Red Sea and the Gulf of Oman, outside the direct affected area.
The third, and largest, line of defense was a coordinated commodity intervention. The world's richest economies have printed off their strategic oil reserves (SPRS), dumping tens of millions of barrels onto the market. This physical influx was reinforced by continuous statements by US President Donald Trump about an imminent diplomatic solution to the crisis, which knocked down the speculative premium on futures exchanges.
But at the moment, this arsenal is almost exhausted. According to estimates by relevant analytical agencies, the combination of all emergency measures made it possible to compensate for about 60% of the volumes lost due to the war. The market was able to find a replacement for 12 million bpd.
There is no physical way to take the remaining 8 million barrels of the daily deficit. To understand the scale: This figure exceeds the combined daily consumption of Germany, France, Great Britain, Italy and Spain. In the absence of new sources of supply, the market has the only balancing tool left — a forced reduction in consumption.
The Oil Diet
In macroeconomics, the process of adapting consumption to falling supply is called demand destruction. It can be implemented in two scenarios: administrative and pricing.
The administrative path is the least destructive for business, but it is extremely dangerous for politicians. It involves direct government intervention: legislative reduction of speed limits on motorways, directive restrictions on the use of air conditioning and heating systems, forced transfer of the corporate sector to remote work to save motor fuel.
The International Energy Agency (IEA) has already issued relevant recommendations, but the governments of developed Western countries ignore them, fearing an electoral explosion. So far, administrative levers are used exclusively in developing economies — in Pakistan, the Philippines, Vietnam and Thailand, where the authorities do not have financial reserves to subsidize prices.
Price Darwinism
The rejection of strict regulation by governments automatically leads to the second path — "price Darwinism." The market begins to balance itself, displacing the weakest players through barrage quotes.
The global structure of hydrocarbon consumption is extremely uneven. The United States, Canada, the European Union, Japan and China account for about 55% of global oil demand. These states, which form the core of the global economy, have sufficient fiscal capacity to continue to purchase raw materials even at $100 per barrel. The central banks and finance ministries of these countries are ready to absorb to some extent (far from absolute), subsidizing key industries and overpaying for logistics.
The remaining 45% of consumption is in the developing world. This is where the main disruption in demand is happening right now. For countries in Africa, Latin America, and South Asia, current prices have already become prohibitive. The physical shortage of the resource is transformed into a shutdown of the real sector. Energy-intensive chemical plants are closing in these regions, nitrogen fertilizer plants are shutting down, and retail gas stations are emptying. The energy deficit is essentially exported to the Global South, as the North has the potential to be a priority buyer.
Nevertheless, the fiscal capabilities of the world's largest economies are also unlimited. Their position has recently become increasingly vulnerable, so if the effect stretches over time, the problem will become very acute for them.
If the American military campaign in the Middle East drags on for months, the strategic reserves of the United States and Japan will run out. When the buffer tanks are empty, the eight million deficit will hit the industrialized countries in full. It will not be enough to displace emerging economies from the market; the destruction of demand will spread to the industrial core of Europe and Asia. Factories will have to be shut down already in Germany and South Korea, and the oil price of $100 per barrel will seem to investors like a period of missed opportunities on the way to much tougher price levels. The global economy will be forced to shrink to the size of its available resource base.
At the same time, for example, in the 1970s, the crisis and stagflation in the United States and Europe triggered a number of adaptation processes. In particular, consumers switched to small cars that do not consume a lot of fuel, and engineers began to work on energy-saving technologies. Currently, certain options also remain: for example, accelerating the transition to renewable sources. Can the current energy crisis not only destroy demand, but also change it structurally?
Safety above all
The current situation around the Strait of Hormuz is indeed comparable in scale to the 1973 oil shock, and even surpasses it in terms of the potential volume of supply shortfalls, said Ivan Timonin, senior manager of the Implementation consulting company.
— From the point of view of demand, this means that there is indeed a risk of its "destruction", but it will manifest itself differently than in the 1970s. Back then, economies were significantly more oil-intensive, and rising prices quickly led to a physical reduction in consumption. Today, the oil intensity of GDP in developed countries has decreased by about 2-2.5 times, so the effect will be milder: a slowdown in demand growth and a local decline in the most sensitive segments — transport, aviation, and developing economies — are more likely than a sharp drop, the expert admitted.
A partial repetition of the effects of 1973 is possible, but in a different form, he did not rule out. Then the crisis led to the transition to more fuel-efficient cars and a sharp increase in energy efficiency. Now the equivalent of this will be the acceleration of the transition to electric vehicles and hybrids, but this is already an existing trend, so we are talking about acceleration rather than a reversal.
— But the main long—term effect of the current crisis is not so much an acceleration of decarbonization as an increase in the priority of energy security. This means diversification of supplies, increased investment in production outside the Middle East, a review of logistics and a reduction in dependence on narrow transport routes," the source said.
Back to coal
In turn, Anastasia Levchenko, a researcher at the Gaidar Institute's Laboratory of Industrial Markets and Infrastructure, noted that the key difference from past crises is the direct destruction of production facilities. This is not only about the temporary suspension of transit, but also about the decommissioning of infrastructure. In particular, the state-owned QatarEnergy company confirmed that the March 18 strike on the Ras Laffan industrial center disabled 17% of Qatar's liquefied natural gas production capacity. Their restoration will take up to five years. Key facilities such as the South Pars gas field (the world leader in reserves), the Ras Tanura oil refinery in Saudi Arabia, and ports were also attacked, reducing the potential for export recovery even after the possible opening of the strait.
— To trigger a demand disruption mechanism similar to 2007-2008, the average annual oil price in 2026 should reach $155 per barrel in current money. Some analytical agencies admit that if the conflict continues until June and the blockade of the strait persists, prices may temporarily exceed $200, which could lead to a global recession, the expert explained.
She added that, unlike in 1973, structural changes in energy consumption may occur faster due to the availability of technological alternatives. In particular, coal-fired generation may increase at first (which is already happening in India and Japan).
— It is important to note that even before the outbreak of the war, the World Bank predicted a structural drop in oil prices to $60 per barrel by the end of 2026 due to the historical oversupply and rapid growth of electric vehicles in China. The military phase created a price shock on top of the long-term trend of declining demand. If the conflict is resolved, the market may face an unusual situation: high prices caused by geopolitics will overlap with a permanent reduction in demand from transport, which will make the recovery in oil prices extremely unstable," concluded the Izvestia interlocutor.
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