IEA warns global oil markets may enter ‘Red Zone’ by July-August

News Agencies 

London, May 22: Global oil markets could enter a “red zone” by July and August as shrinking oil stocks coincide with rising summer demand and continuing supply disruptions in the Middle East, Executive Director of the International Energy Agency (IEA) Fatih Birol warned on Thursday.

Speaking at Chatham House in London, Birol said the global energy market was facing mounting pressure due to declining inventories and the absence of fresh oil exports from key Middle Eastern producers amid the ongoing Iran-related crisis.

“We may be entering the red zone in July-August if we don’t see some improvements,” Birol said, warning that oil demand was expected to rise sharply during the peak summer travel season while stocks continued to erode.

According to the IEA chief, nearly 14 million barrels of oil per day had been removed from the market because of disruptions linked to the crisis.

Birol described the current situation as more severe than previous oil shocks experienced in 1973, 1979 and during the 2022 energy crisis triggered by Russia’s invasion of Ukraine.

He said reopening the Strait of Hormuz fully and unconditionally remained the most important step toward stabilizing global energy markets.

The strategically vital waterway handles a significant share of global oil shipments and has emerged as a major concern amid escalating tensions involving Iran and the broader Middle East.

Birol also said member countries of the International Energy Agency could consider additional releases from strategic oil reserves if required. He noted that only a portion of the bloc’s emergency reserves had been utilized so far.

“As much as 80 per cent of the IEA’s collective reserves have not been released,” he said, adding that the agency stood ready to coordinate any future intervention.

The IEA chief warned that geopolitical instability was casting an unprecedented shadow over the global energy sector.

“I have never seen the dark and long shadow of geopolitics so dominant in the energy sector,” he remarked.

Birol also expressed concern that rising inflation caused by surging energy prices could strengthen extremist political movements in Europe, cautioning that some groups might exploit public anger over rising costs to undermine confidence in democratic institutions.

He further stated that Iran itself was likely to face mounting difficulties, noting that the country did not possess unlimited oil storage capacity and that its energy industry could come under severe strain.

Birol said there was little prospect of oil production recovering fully within the next year, including in countries such as the United Arab Emirates.

He added that oil-dependent economies, including Iraq, could face long-term financial difficulties that might affect their ability to reinvest in oil production infrastructure.

The IEA chief said the crisis had damaged the Middle East’s reputation as a reliable energy supplier and predicted that countries would increasingly pay premium prices for oil from politically stable regions.

He also forecast major shifts in global energy strategies in the coming years, with governments likely to diversify energy imports and accelerate investment in renewable energy, nuclear power and domestic energy production.

Countries, he said, would increasingly seek energy sources that “make economic sense,” while renewable energy and alternative fuel systems would receive greater policy support worldwide.

Birol’s remarks came amid reports of difficulties surrounding diplomatic efforts involving Pakistan, which has been attempting to mediate talks between Iran and the United States following claims that a potential breakthrough in negotiations was near.