Global energy prices face further upside risk if the Strait of Hormuz remains closed, the head of the International Energy Agency (IEA), Fatih Birol, warned on Friday, adding that the agency is in talks over a possible release of emergency oil reserves but has not yet made a decision.
The IEA now calls the current supply shock the largest in history, saying it exceeds the combined impact of the 1973, 1979 and 2022 crises. With one of the world’s key oil routes shut for seven weeks and a U.S. naval blockade of Iranian ports in place since April 13, the agency estimates that about 13 million barrels per day of supply have been removed from the market and more than 80 energy facilities have been damaged.
Oil output recovery seen taking up to two years
Birol said the IEA expects global oil output to take nearly two years to return to pre‑war levels, even if diplomacy delivers a near‑term breakthrough. During this period, he cautioned, markets are likely to experience prolonged volatility as supply chains adjust and damaged infrastructure is restored.
The agency is “monitoring the situation closely” and is assessing a range of measures to offset disruptions, including the coordinated release of strategic reserves. Any such move would aim to smooth the most acute supply shortfalls rather than fully replace lost flows through the Gulf.
Strait of Hormuz closure disrupts energy flows
The Strait of Hormuz, one of the world’s most important maritime chokepoints, handles a sizable share of global oil shipments. Its closure has sharply constrained supply lines and undermined price stability across the energy complex.
The disruption is already visible in inventory data. Global observed oil stocks fell by about 85 million barrels in March alone, according to the IEA, including a drawdown of 205 million barrels from inventories held outside the Middle East Gulf. The agency argues that these stock declines underscore the scale and persistence of the supply shock.
Prices ease on ceasefire hopes, but risks remain
Despite the deep physical disruption, benchmark prices showed some relief. During Birol’s earlier briefing, West Texas Intermediate (WTI) crude was trading 0.39% lower at $89.35 per barrel, while Brent futures were also fluctuating amid worries over Gulf shipping.
More recently, Brent crude futures slipped 1.35% to $98.05 a barrel and U.S. WTI fell 1.74% to $93.40. The pullback was attributed to a new 10‑day ceasefire between Israel and Lebanon and the prospect of weekend talks between Washington and Tehran.
Analysts caution that these daily price moves may obscure the underlying tightness. Oil surged by about 50% in March, demonstrating how quickly markets can reprice when supply fears intensify. Any setback in negotiations or escalation in the region could rapidly reverse the latest declines.
Inflation and financial conditions in focus
The IEA warns that persistent energy price spikes are feeding directly into inflation, raising transportation and manufacturing costs worldwide. This, in turn, is likely to keep central banks under pressure to maintain restrictive monetary policies.
Tighter policy and higher borrowing costs could weigh on assets closely tied to economic growth, as liquidity conditions deteriorate. Market participants are watching upcoming inflation and activity data for signs that the energy shock is spilling over into broader macroeconomic weakness.
Long‑term shift to cleaner energy shows mixed momentum
The crisis is also reshaping the conversation around energy security and the transition away from fossil fuels. IEA analysts suggest that a prolonged disruption in the Gulf could accelerate the global move toward electric vehicles (EVs) and other alternatives, as countries seek more stable energy sources.
However, the latest sales data reveal uneven progress. Global EV sales in the first quarter of 2026 declined 3% year‑on‑year. Beneath that headline figure, Europe recorded a 27% jump in EV sales, helped by elevated fuel prices and policy support, while North America and China saw contractions of 27% and 21% respectively.
For now, the IEA’s message is that markets face a dual challenge: navigating an unprecedented oil supply shock in the near term while managing a slower and regionally uneven shift toward cleaner energy over the longer horizon. Traders are being urged to track both the diplomatic efforts around the Strait of Hormuz and the evolving policy response to inflation and energy security.
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