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ConflictIEA warns world has weeks to reopen Strait of Hormuz or face economic shock
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The International Energy Agency (IEA) Executive Director Fatih Birol warned that the world has only weeks, not months, to reopen the Strait of Hormuz to avoid severe economic consequences. The warning follows a sharp escalation in the Middle East, where Iran struck commercial vessels including two UAE-operated supertankers, and the U.S. responded with strikes on Iran and reinstated a naval blockade. Tanker traffic through the strait, which had briefly rebounded after a U.S.-Iran memorandum, has plunged to five-week lows. Oil prices rose about 13% since the previous Friday. Birol stressed that the strait must be 'fully open, unconditionally open' to prevent global economic slowdown and fuel price spikes. The IMO Secretary General also declared navigation through the chokepoint too dangerous. Analysts note that while crude supply is not the immediate stress, fuel markets are extremely tight.
Source report
The world has only a few weeks before the re-escalation in the Middle East and the renewed halt to tanker traffic through the Strait of Hormuz take an economic toll, according to Fatih Birol, Executive Director of the International Energy Agency (IEA).
Sharp Deterioration in Regional Security
The situation in the region has sharply deteriorated over the past week:
- Iran struck commercial vessels transiting the Strait of Hormuz, including two supertankers operated by the Abu Dhabi National Oil Company of the UAE.
- The United States carried out a series of strikes on Iran and reinstated a naval blockade to prevent Iran-linked tankers from loading and exporting Iran’s oil.
Tanker Traffic Plunges
Tanker traffic through the Strait of Hormuz—which had just started to rebound in the three weeks following the signing of the U.S.-Iran memorandum of understanding—came to an abrupt halt late last week. Daily transits plunged to five-week lows.
The previous rush by Middle Eastern producers to evacuate oil amassed in the Gulf since the war began has stopped. Oil prices have risen by approximately 13% since last Friday.
Markets Brace for Further Disruption
Oil, bond, and equity markets have begun pricing in additional disruption to oil flows. Economists and governments are bracing for another spike in fuel prices and inflation.
"If the Strait of Hormuz remains closed, we may again have some difficulty for global economies, including those in the region and developing nations and Asia," Birol told Bloomberg in an interview published on Thursday.
"It is not months, it is weeks" after which the strait needs to be "fully open, unconditionally open," to spare the global economy from new challenges and slowdown, the IEA head said.
Fuel Markets Under Pressure
Currently, the real stress in the oil market is not crude oil, but very tight fuel markets, according to economists and oil analysts.
Meanwhile, Arsenio Dominguez, Secretary General of the United Nations' International Maritime Organization (IMO), stated that navigation through the Strait of Hormuz is now too dangerous for ship owners and operators to brave the chokepoint.
By Tsvetana Paraskova for Oilprice.com
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