Energy Disruption in the Middle East
Structural Supply Issues Beyond the Strait of Hormuz
1. Feared fuel supply disruptions have not materialised
IEA Executive Director Fatih Birol described the situation as “the biggest energy crisis in history” — setting expectations of severe and immediate disruption to global supply.
In the first weeks following the Strait’s closure, fuel demand spiked sharply as consumers and businesses moved to secure supply. That initial pressure has since subsided into a new normal of modestly higher prices — the scale of disruption has been widely overstated.
Stress is being felt in developing countries: fuel rationing has been introduced in parts of Bangladesh and Pakistan, factory output has been curtailed in Vietnam and Indonesia, and Sub-Saharan African nations dependent on Gulf imports are facing price spikes and spot shortages.
2. Energy disruptions take time to come through the system
Ships that had already departed the Gulf before the Strait closed continued to arrive at their destinations over the following two to four weeks, delaying the visible impact on supply.
Much of the early pressure on fuel availability was driven by demand — consumers and businesses stocking up in anticipation of shortages — rather than an actual reduction in supply reaching markets.
3. Governments acted quickly to decrease the initial impact
The IEA coordinated the release of 400 million barrels from member nations’ emergency strategic stockpiles — the largest coordinated release on record — helping to stabilise markets in the immediate aftermath of the closure.
Several governments released national emergency reserves on top of the coordinated IEA action, and the US temporarily lifted sanctions on some Russian and Iranian crude to provide additional supply.
These measures successfully dampened the initial demand spike and bought time. However, the tools used are now largely spent and cannot be deployed at the same scale again.
Crude oil is more substitutable than most other commodities affected by this crisis — alternative suppliers exist and can be accessed over time. The more persistent challenge lies in commodities where the Gulf has near-monopoly supply and no short-term replacement is available.
4. Other supply issues outside of oil are also becoming acute
The Strait of Hormuz is the transit route for a broad range of commodities beyond crude oil, many of which have received little public attention but carry significant economic consequences.
Natural gas (LNG) — roughly 20% of the world’s LNG transits the Strait, largely from Qatar’s Ras Laffan complex, the world’s largest LNG export facility.
Naphtha — a petroleum byproduct critical to the production of plastics, packaging, and synthetic fibres. A prolonged disruption eliminates an estimated 24% of global seaborne supply.
Ammonia and urea — nearly a third of globally traded urea and ~25% of globally traded ammonia transit the Strait, making this a significant fertiliser supply event.
Sulphur — almost 50% of all globally traded sulphur originates in the region, a critical feedstock for fertiliser production.
Helium — Qatar produces roughly 30% of the world’s helium as a byproduct of LNG processing.
LPG, MEG, aluminium inputs, iron ore pellets — all transit the same chokepoint and are subject to the same disruption.
Qatar’s Ras Laffan facility — the world’s largest LNG export complex — sustained significant damage in March 2026. Two LNG production trains (Trains 4 and 6) were destroyed, removing 12.8 million tonnes per annum of capacity, equivalent to approximately 17% of Qatar’s total LNG exports. QatarEnergy has stated repairs will take three to five years, with an estimated annual revenue loss of $20 billion. Partial restarts of undamaged trains are underway, with Wood Mackenzie projecting the undamaged portion of the facility could return to operation by late August 2026 — but the damaged trains represent a structural capacity gap for the remainder of the decade.
Force majeure is a contractual clause that releases a supplier from delivery obligations during extraordinary events beyond their control. QatarEnergy has declared force majeure on long-term LNG supply contracts with buyers in South Korea, China, Italy, and Belgium — meaning those countries cannot hold Qatar legally liable for non-delivery and must source replacement supply at current spot market prices, which are substantially higher.
5. Supply impacts are continuing to build
Despite government interventions, global oil stockpiles are estimated to have dropped by approximately 4.8 million barrels per day between March 1 and April 25 — far exceeding the previous peak quarterly drawdown rate. Reserves are being consumed faster than they are being replenished.
Energy infrastructure damage across the Gulf is estimated at $34–58 billion (Rystad Energy), with restoration to pre-war production levels expected to take up to two years under optimistic assumptions.
6. These disruptions are beginning to flow into business and consumer prices
While oil supply has been the public focus, the structural supply damage in gas, petrochemicals, and other commodities is likely to prove more persistent and harder for governments to address through emergency measures.
Helium: Qatar’s halt in helium production has removed roughly 30% of global supply. Helium is irreplaceable in semiconductor manufacturing — used to cool wafers, power lithography systems, and detect leaks in fabrication lines. Suppliers are already issuing force majeure notices to chip manufacturers in the US and South Korea. Vehicle chips, consumer electronics, AI infrastructure, and medical imaging equipment are all exposed.
Naphtha: The reduction in seaborne naphtha supply is flowing through to petrochemical producers globally, raising input costs for plastics, packaging, synthetic textiles, and detergents — a broad cross-section of manufactured consumer goods.
Aluminium: Higher energy costs are directly raising smelting costs, pushing aluminium prices to four-year highs. This feeds into packaging, construction, transport, and electronics supply chains.
7. Fertiliser supply is the most significant downstream concern
When Russia invaded Ukraine in 2022, there were widespread fears of a global fertiliser crisis. Those fears did not fully materialise — Russia remained willing to export, and the market adapted through supplier switching and stockpiling.
The current disruption is structurally different. The 2022 event affected one major exporting country. The current crisis simultaneously affects Saudi Arabia, Kuwait, Qatar, Iran, and the UAE — collectively responsible for approximately 50% of globally traded sulphur, a third of globally traded urea, and 25% of globally traded ammonia.
Output at the world’s largest urea plant — located at Qatar’s Ras Laffan — has halted. Fertiliser affordability across major importing nations (India, Brazil, Bangladesh, Egypt, Sub-Saharan Africa) has reached a four-year low.
A reduction in nitrogen fertiliser application in the 2026 growing season will directly reduce crop yields in 2027 — a lagged effect that cannot be reversed by policy once the planting window closes. The World Food Programme projects 45 million additional people face food insecurity if the disruption persists through June 2026.
8. Inflationary pressure will be felt across major economies
The OECD projects US inflation could reach 4.2% in 2026, up from ~2.6% last year, with overall G20 inflation reaching 4%. The Fed’s preferred PCE measure could hit 4% by year-end — double its 2% target.
Unlike the post-COVID inflation spike, this is a supply-side shock across multiple commodity categories simultaneously, making it harder to address through monetary policy alone.
Central banks face a direct dilemma: raising rates to contain inflation risks choking already-slowing growth; holding rates risks allowing price pressures to embed. The Fed, ECB, and Bank of England have all held rates while flagging upside inflation risks.
UK 2026 growth has been revised down to 1.1% from 1.4%. The Peterson Institute projects global GDP growth slowing from 3.3% in 2025 to 3.0% in 2026, with further downside if commodity pressures persist.
9. Supply chain scrutiny will raise the long-run cost of energy
More than 75% of global spare crude production capacity was located in Middle Eastern countries exporting through the Strait — meaning it was unavailable precisely when it was needed most. This structural vulnerability will now drive significant policy change.
Strategic reserve expansion: Governments will face pressure to hold larger reserves, diversify their geographic sources, and extend reserve coverage to non-oil commodities including helium, fertiliser feedstocks, and refined products.
Pipeline bypass development: Saudi Arabia’s Petroline and the UAE’s Abu Dhabi Crude Oil Pipeline offer partial bypass capacity but are already near capacity. Investment in additional bypass infrastructure is expected.
Supplier diversification: India has already pivoted to West African and Latin American crude. Other major importers are accelerating efforts to reduce Gulf dependency.
Energy transition acceleration: The IEA expects the crisis to drive increased investment in renewables, nuclear, and EVs as governments prioritise domestic energy self-sufficiency.
Permanent risk premium: Shipping through or near the Gulf now carries elevated war risk insurance premiums regardless of whether the Strait is open, raising the structural cost of Gulf energy for all importing nations.
10. Timeline: when pressure becomes visible
Now through Q2: Price shocks visible across energy, freight, and spot fertiliser markets. Jet fuel and diesel tightening in aviation and logistics. Inventories drawing down but the worst physical impacts still ahead.
Q3 2026: Fertiliser price increases begin translating into food shelf prices as cost absorption ends. Food CPI expected to be materially elevated by September. First harvest yield data arrives.
2026–27 harvest cycle: The structural food supply problem becomes apparent — fertiliser not applied this planting season cannot be retroactively replaced. Reduced yields flow through to tighter global grain supply in late 2026 and into 2027.
Multi-year: Ras Laffan LNG reconstruction estimated at three to five years. Gulf refinery repairs measured in months to years depending on the facility. The global LNG market remains structurally tighter regardless of ceasefire outcome.
Sources: IEA, Reuters, CNBC, Oxford Economics, Rystad Energy, CEPR, OECD, IMF, QatarEnergy, Argus Media, Morgan Stanley, Cato Institute, Peterson Institute, World Food Programme, Wood Mackenzie, Natural Gas Intelligence, Council on Foreign Relations.