Hello Power Up readers,
The U.S.-Israeli war with Iran that has engulfed the Mideast has entered its second week with no end in sight, and the turmoil in energy markets is now threatening to devastate the global economy. Brent crude oil prices surged to over $119 a barrel at one point on Monday, hitting levels not seen since mid-2022, as shipping out of the Gulf remained largely paralysed, trapping nearly a fifth of global oil and gas supplies behind the Strait of Hormuz.
The shipping disruption is crushing Gulf producers. Iraq’s production from its main southern oilfields has fallen by 70% since the war began, with crude storage having reached maximum capacity. Kuwait and the UAE have also started reducing output. And last week Qatar shut down its entire liquefied natural gas (LNG) production, a fifth of global output. Oil refineries and storage terminals in the region have also been hit by Iranian strikes.
It is hard to overstate the gravity of the situation on the global economy. As stock markets skid, governments, particularly in energy import-reliant Asian economies, have scrambled to limit the impact on businesses and consumers.
South Korea will introduce a fuel price cap for the first time in nearly three decades. Japan, which imports 95% of its oil from the Middle East, is considering a release of oil reserves from storage. India has reduced its industrial activity and resumed imports of Russian oil at scale, while China has limited fuel exports.
In a sign of the mounting concern over supply disruptions, finance ministers from the Group of Seven nations will discuss the possibility of a joint release of emergency oil reserves in a meeting on Monday. That news caused oil prices to retrace slightly this morning, though they are still posting double-digit increases for the day.
As the crisis deepens, one thing is becoming abundantly clear: you can tear up all those forecasts for an oil glut this year. More on this below.
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