The Iran War’s First 90 Days Upended Energy Markets

Global Energy Landscape Upended

What began as a year anticipated to be defined by surplus in crude oil and liquefied natural gas (LNG) markets has been violently reshaped. The U.S.-Israeli strikes on Iran, commencing February 28, have triggered the most severe oil and gas supply shock on record. In just 90 days, approximately 1 billion barrels of crude oil have vanished from global availability. This dramatic reduction has established a substantially higher baseline for energy prices, now characterized by near-daily, sharp price swings. Crucial trade arteries have been rerouted, and the cost of chartering oil tankers has surged dramatically.

The repercussions are acutely felt in Asia, where tangible supply deficits are surfacing. Concurrently, worldwide stockpiles of crude oil and refined fuels are depleting at an alarming rate. This inventory drawdown suggests the market may soon deplete its existing buffers, the very cushions that previously prevented prices from escalating to extreme levels seen in past crises. The de facto closure of the Strait of Hormuz, a critical artery handling 20% of global oil and LNG transit, has seen traffic plummet by roughly 90%.

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Middle Eastern energy producers have been compelled to significantly scale back upstream operations as their storage facilities reached capacity. Daily global crude production volumes have been slashed by over 10 million barrels per day, a deficit that no increase in output from other regions can realistically compensate for. Beyond crude, LNG shipments from key producers like Qatar and the United Arab Emirates (UAE) are also severely impacted. Qatar, for instance, halted LNG production as early as March 2.

Qatar's LNG Production Faces Long-Term Setback

The damage inflicted on the Ras Laffan complex, the world's largest liquefaction facility, by Iranian missile strikes has led Qatar to issue advisories indicating that its LNG export capacity might not recover to pre-conflict levels for as long as five years. This protracted recovery period for a major LNG hub adds another layer of uncertainty to global gas supplies, particularly for Asian markets heavily reliant on these shipments.

Data compiled by Kpler reveals the staggering scale of the crude and condensate supply loss, confirming the depletion of 1 billion barrels by the close of May. As of May 22, cumulative losses in the Middle East alone neared 961 million barrels. Further production curtailments are anticipated, with an additional 100,000 barrels per day potentially offline due to ongoing pressures in Iraq and Saudi Arabia.

Naveen Das of Kpler noted the complex regional dynamics, stating, “Seasonally-higher demand is approaching, which could incrementally boost regional supply to meet demand, though the economic realities in the region may force some organic demand destruction as well, capping any summer-linked marginal increase in production levels.” This suggests that while demand may rise, economic constraints could temper any significant supply rebound.

Inventory Drawdowns Accelerate Globally

Amidst this unprecedented supply crunch, global inventories are shrinking at an accelerating pace. Even the United States is experiencing significant inventory drawdowns. Excluding China, which has strategically built substantial reserves exceeding 1.2 billion barrels over the past year, the rest of the world's onshore stocks are depleting faster and faster, according to Kpler. The global drawdown rate, which was just over 1.5 million barrels per day in early May, has now climbed to nearly 1.7 million barrels per day. This intensifying depletion rate signals a potentially tighter market ahead.

Shipping Routes and Tracking Become Opaque

The conflict has fundamentally altered global shipping patterns and the ability to track energy movements. Saudi Arabia, a primary crude exporter, is now routing oil from its Red Sea port of Yanbu, effectively bypassing the Strait of Hormuz. Similarly, the UAE is enhancing its export capacity outside the chokepoint, including through a new pipeline to Fujairah.

The elevated threat to vessels traversing the Strait of Hormuz has fostered a new era of shipping opacity. Commercial vessels, not just those linked to Iran, are increasingly operating with their transponders switched off. Vortexa data indicates this “dark mode” activity has broadened beyond sanctions evasion to become a commercial strategy driven by conflict risk and operational uncertainty. Claire Jungman, Director of Maritime Risk & Intelligence at Vortexa, explained, “AIS-off movements through Hormuz are no longer only a sanctions-evasion signal. They have become a wider commercial response to conflict risk, operational uncertainty, and the need to keep Gulf cargo moving through one of the world’s most important energy chokepoints.”

This increased obscurity makes real-time tracking of oil shipments exceptionally challenging. Jungman elaborated that when clean products, LPG, and LNG also exhibit reduced Automatic Identification System (AIS) visibility, the uncertainty cascades into refinery supply chains, product availability, regional inventory assessments, and demand analysis at the destination level.

Market Ripple Effects

The sustained disruption to oil and LNG supplies stemming from the Iran conflict introduces significant volatility and upward pressure on energy prices. Traders are now grappling with an environment where supply buffers are rapidly diminishing, and transparency in shipping is compromised. The immediate aftermath has seen a dramatic spike in tanker rates, reflecting the increased risk and longer voyage times associated with rerouted trade flows.

The direct impact is felt most acutely in crude oil benchmarks like Brent and WTI, which are likely to remain highly sensitive to any further supply news or geopolitical escalations. The elevated cost of energy also poses inflationary risks, potentially influencing central bank policy and impacting currency pairs such as USD/CAD, given Canada's significant oil production. Furthermore, the instability in energy markets can spill over into broader equity indices, particularly affecting energy sector stocks and companies sensitive to input costs. Investors should monitor inventory data closely for signs of continued draws, as well as geopolitical developments in the Middle East, which will remain the primary price driver.