How long can the world & India absorb the US-Iran war oil shock?
In its August outlook on oil, US Energy Information Administration estimates that it will take until early 2027 for oil production and trade patterns to generally return to pre-conflict status. For how long can the global economy, and India, survive an oil shock that may be snowballing slowly to possibly hit hard?
The ongoing conflict between the US and Iran has resulted in a significant disruption of oil supplies, with global crude prices experiencing limited spikes. However, it remains uncertain how long the world and India can absorb the potential oil shock that may arise if the war continues for an extended period. The global oil market has seen relatively minimal disruption in its first few months, but if the conflict persists for six months or more, the question arises - how long can the global economy and India survive an oil crisis that may worsen gradually?
According to US Energy Information Administration's August outlook, it will take until early 2027 for oil production and trade patterns to return to pre-conflict status. Additionally, the IEA predicts that oil prices will remain high until global oil flows are restored and inventories are replenished due to the large drawdown in global reserves caused by disruptions in the Strait of Hormuz.
While the Middle East conflict is ongoing, global oil production and trade patterns are expected to normalize by early 2027. Furthermore, global oil supply is projected to decrease by 4.3 million barrels per day, or around 4%, this year. Despite the reserves of the International Energy Agency (IEA) being sufficient to cover the current 5 million barrels per day supply gap for approximately 180 days, only a fraction of these stocks can be released, leaving around 300 days of inventory coverage.
However, the actual availability of oil stocks may vary depending on the operational requirements of refineries and supply chains.
Geographical distribution of crude inventories is uneven, with some countries holding substantial strategic and operational stocks. However, many nations are unlikely to release large volumes of their reserves to export, as it may compromise their domestic energy security. Furthermore, logistical constraints, crude quality requirements, refinery configurations, and regional supply preferences may limit the effective use of available inventories.
Nonetheless, additional production from the UAE, US, Guyana, Brazil, and potentially Venezuela could alleviate supply constraints, thereby extending the period over which the market can absorb the current disruption.
Written by urgent.news from Times of India's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
