Prolonged Middle East Conflict Threatens Permanent Demand Destruction
The global oil market is facing a prolonged crisis due to the ongoing conflict in the Middle East. The strikes against Iran have led to a significant decrease in oil supply, with prices not showing any signs of returning to pre-war levels. Global oil production is down by more than 5 million barrels per day (bpd) relative to pre-war levels, and demand has also decreased by over 3 mb/d.
The Strait of Hormuz, a critical waterway for global oil trade, remains closed, with no clear indication that oil exports from the region will be normalized soon. As a result, most energy forecasters have been forced to reassess their projections. The International Energy Agency (IEA) has already published its August report, which projects a contraction in global oil demand.
The situation is even more dire for countries heavily reliant on road transport, such as Japan. In Asia, we are seeing a significant contraction in road transport demand, while the US is also experiencing moderate demand destruction due to higher prices leading to reduced driving. Higher oil prices following the Hormuz crisis appear to be accelerating the shift to electric vehicles, with EV sales in 'new markets' jumping 97% in July this year compared to the same month last year.