Middle East Conflict Accelerates Shift Away from Fossil Fuels

The consensus among energy forecasters is being challenged by recent events in the Middle East. The conflict between the US and Iran has lasted for half a year, with no clear indication of normalization any time soon.

Global oil production, prices, and demand are significantly influenced by the flow of oil through the Strait of Hormuz. Global oil inventories are huge and serve as an important buffer against supply shortfalls.

The Strait is not entirely closed, but it's also not open. As a result, global supply is down by more than 5 million barrels per day relative to pre-war levels, while demand is down by over 3 million barrels per day.

This has significant implications for the oil industry, with most of the world's oil used in transportation. In Asia, there's a contraction in road transport demand, and the US is experiencing moderate demand destruction due to higher prices leading to reduced driving.