World faces 'biggest energy security threat' amid Hormuz blockade: IEA chief

The world is currently grappling with "the biggest energy security threat in history," warned Fatih Birol, the head of the International Energy Agency (IEA), in a statement to CNBC on Thursday.

“As of today, we’ve lost 13 million barrels per day of oil...and there are major disruptions in vital commodities,” Birol was quoted as saying at CNBC’s Converge Live in Singapore.

Birol had previously issued a stark warning that the conflict with Iran and the continued closure of the Strait of Hormuz would trigger "the largest energy crisis we have ever faced." 

Consequently, he has pressed governments to strengthen their resilience by developing alternative energy sources.

Meanwhile, the IEA earlier this month had scaled back its forecast for both global demand and supply of crude oil in 2026 due to the devastating impact of the Iran war.

Birol noted that he expects nuclear power to receive a boost, renewables like solar and wind to grow very strongly, and electric cars to benefit from this.

He added that alternative fossil fuels could also make a comeback.

Double-blockade at the Strait of Hormuz

The critical maritime passage of Strait of Hormuz, historically transiting an average of 20 million barrels of oil and petroleum products daily before the conflict, is now subject to a "double-blockade."

Neither Iran nor the US is permitting vessels to traverse the strait.

The IEA has labeled this strait one of the world's "most critical oil transit chokepoints."

The agency warns that its closure will severely affect global economic growth, fuel inflation, and could necessitate energy rationing. 

Furthermore, the IEA anticipates an immediate jet fuel crisis in Europe, projecting shortages in some nations within a few weeks.

The IEA had recently issued a statement echoing this concern, warning that certain European nations might experience jet fuel deficits in the coming six weeks.

The blockage is especially severe because the Middle East supplies about 75% of Europe's jet fuel.

Finding replacement sources is expected to be challenging. Major alternative suppliers, including South Korea, India, and China, are also likely to have limited jet fuel available for export.

The European jet fuel market is currently facing extreme tightness, as highlighted in a recent special section of the IEA's monthly report.

Mitigation efforts and current market prices

“I really hope, first of all, that the strait is opened and refinery exports start from there, but we may well need to take some measures in Europe to reduce air travel as well,” Birol said.

To lessen the effects of the global energy supply disruption, the 32-member IEA agreed in March to draw 400 million barrels of oil from its emergency reserves.

In early April, Birol stated that although the IEA would consider a second release of reserves, he viewed such an action as merely a temporary reprieve, not a definitive solution to the crisis.

“The cure is opening up the Strait of Hormuz. We are gaining some time, but I don’t claim that this will be a solution, our stock release,” he added.

At the time of writing, Brent crude oil on the Intercontinental Exchange was up 1.8% at $103.79 a barrel.

The benchmark climbed back over the triple-digit figure as uncertainty prevailed over peace negotiations between the US and Iran.

The West Texas Intermediate crude oil was at $94.83 a barrel, up 2% from the previous close.