Diesel and jet fuel shortages will be ongoing “for some time” due and there will be lasting economic damage even if the Iran war ceasefire holds, the International Monetary Fund (IMF) has warned.
Up to a fifth of total global oil usually passes through the Strait of Hormuz, but with the key shipping route for oil and gas still effectively closed, despite a ceasefire deal being agreed, less than 10 per cent of pre-war transit is getting through.
Prices have soared by more than 40 per cent since the war began, and the cost of Brent crude oil has spiked several times, sending it close to $120 a barrel during the worst days of the conflict. On Friday morning, it sits at $97.60, up 1.8 per cent.
In the absence of an absolute end to the war and with oil still not flowing freely, the Strait’s closure “will for some time continue to have ripple effects”, said the IMF’s managing director Kristalina Georgieva.
“Even in a best case, there will be no neat and clean return to the status quo ante. The fact is, we don’t truly know what the future holds for transits through the Strait of Hormuz.”
Refined oil products, diesel and jet fuel were all referenced by Ms Georgieva, though no specific timescale for a return to the norm could be given as she warned of lasting economic damage around the world.
She said the IMF would have upgraded its global growth outlook for 2026 if the conflict had not started, “but now, even our most hopeful scenario involves a growth downgrade”.
The IMF expects to need to hand out at least $20bn (£14.6bn) in emergency money to support war-affected nations, a figure which could rise to $50bn (£36.5bn). Food price rises and supply insecurity were also another inevitable concern, Ms Georgieva added.
While aviation fuel may be a concern for the future, the AA this week handed a boost to British drivers by suggesting that petrol pump prices could start to come down in two weeks – but only if the current peace talks go ahead as planned.
But oil prices have slowly risen again since the initial announcement of a ceasefire, and there’s no immediate signal that significant amounts of oil are passing through the Strait yet.
“There clearly remains much to iron out. Most notably, Iran is maintaining its control of the Strait of Hormuz, with reports suggesting that the passage remains effectively closed with only bulk carriers carrying dry cargo, rather than oil, getting through,” noted Richard Hunter, head of markets at Interactive Investor.
Last month, the government urged motorists not to change their driving habits or stock up on fuel by panic-buying unnecessarily, after some early reports that it was occurring.
And last week, major economic research organisation, Oxford Economics, warned fuel rationing may be on the agenda for the wider world if the situation across the Middle East persisted.
Meanwhile, North Sea oil prices have risen to a new record high as another knock-on effect of the wider market chaos. Forties Blend, the marker used for cargoes of oil produced in the region off the UK coast, rose to nearly $147 on Thursday evening, surpassing the previous high reached during the 2008 financial crisis, according LSEG data.
