Middle East War Tightens Noose on Energy Markets as Oil Exits Disrupted

The ongoing war in Iran has created a perfect storm in energy markets, with three key oil exit routes in the Middle East now at risk. The Strait of Hormuz remains the epicenter of the crisis, where around 20 million barrels per day of crude oil and petroleum products pass through before being restricted due to navigation difficulties.

The International Energy Agency (IEA) estimates that over 10 million barrels per day of Gulf production remained shut in August, with global production falling by 1.6 million barrels per day that month. The IEA also reports a decrease of 507 million barrels in observed global stocks since February.

In addition to the Strait of Hormuz, the East-West Pipeline (Petroline) in Saudi Arabia has been hit by a drone attack, forcing it to temporarily close and threatening around 4% of global oil supply if the interruption is prolonged. Meanwhile, Bab el-Mandeb, the southern gateway to the Red Sea, has also seen increased pressure from Houthi attacks, raising transportation costs for vessels crossing the strait.