Strait of Hormuz crisis raises global oil supply risks despite UAE exports, warns IEA

Dubai: The International Energy Agency (IEA) has warned that the escalating conflict in the Middle East is increasing concerns over global energy supplies, even as exports from the UAE and Saudi Arabia help keep crude oil markets stable.

In a statement issued Tuesday, IEA Executive Director Fatih Birol said the agency is closely monitoring oil markets following the latest developments around the Strait of Hormuz, a vital shipping route for global energy supplies.

"The escalation in hostilities affecting the Strait of Hormuz and energy infrastructure in the region increases security of supply concerns and uncertainty over the market outlook," Birol said.

He added that threats to the Bab el-Mandeb Strait, an increasingly important alternative route for Gulf exports, have added to those concerns.

Despite the heightened tensions, Birol said crude oil markets are continuing to benefit from several factors that are cushioning the impact.

These include significant supplies from Gulf producers, particularly Saudi Arabia and the United Arab Emirates, which are continuing to export oil through alternative routes that bypass the Strait of Hormuz, while some cargoes are still moving through the waterway.

According to the IEA, Gulf exports have fallen from their late-June peak but remain well above the levels recorded between early March and mid-June.

The agency also said increased oil exports from the United States, Brazil, Venezuela and Kazakhstan have helped offset part of the supply losses from the Gulf.

On the demand side, China has reduced its crude oil imports by nearly 50 per cent compared with pre-war levels, helping ease pressure on global markets.

The IEA's comments came as the UAE outlined plans to further reduce its reliance on the Strait of Hormuz for energy exports.

Speaking to CNBC Arabia, UAE Minister of State for Foreign Trade Dr Thani bin Ahmed Al Zeyoudi said the country has begun implementing a strategy aimed at reducing dependence on the strategic waterway to "zero", particularly for oil exports.

He said work is under way on an alternative export route, which is expected to be completed before the end of the year. The UAE is also studying the development of a third export route to support future increases in oil production.

Al Zeyoudi added that connecting the UAE with the Iraqi city of Basra, and onward to Turkey and Syria, is a strategically important project. He said the UAE plans to accelerate investments linked to the development of the Turkey-Basra corridor in the coming months.

The IEA said emergency stock releases by its member countries continue to provide significant support.

Since announcing a coordinated action on March 11 to make 400 million barrels of oil available to the market, around 290 million barrels have already been released, with additional volumes still entering global markets.

The agency said its member countries continue to hold more than 1 billion barrels of government-controlled emergency oil stocks in reserve.

Diesel and petrol markets under pressure

While crude supplies have remained relatively resilient, Birol warned there is "no room for complacency".

He said refinery activity and fuel production have not recovered as strongly as crude deliveries, leaving markets for refined products such as diesel and petrol considerably tighter than crude oil markets.

Natural gas markets are also under pressure.

The IEA said increased LNG exports from the United States and Canada have replaced around 70 per cent of the gas supply lost through disruptions in the Strait of Hormuz.

However, further delays to the resumption of Gulf LNG exports could keep markets tight for longer, particularly in Europe as countries build gas storage ahead of winter.

Birol said a resolution to the conflict that includes the "full and unconditional reopening" of the Strait of Hormuz will be essential to prevent further deterioration in global energy security.

The warning comes as the Strait of Hormuz faces its most serious disruption in years.

Recent military escalation has seen oil tankers struck by projectiles, major fires reported on vessels in the waterway, and crude oil flows through the strait fall sharply from around 10 million barrels per day in early July to an estimated 1.5 million barrels per day, while many LNG carriers have halted transits.