Fear of shortages is cracking the world’s dependence on oil

The global energy market is facing what economists call demand destruction, a persistent decline in oil consumption driven by sharp price increases and resource shortages. The International Energy Agency (IEA) already adjusted its forecasts this week, anticipating an imminent decline in oil consumption. In the current context, marked by the war in Iran and the blockade of the Strait of Hormuz, the agency estimates that demand could contract by 80,000 barrels per day this year — evidence of a structural adjustment driven by tight supply and high costs.

This shift is partly explained by the depletion of inventories that had until now softened the shock. As long as countries were drawing on reserve crude, the impact remained abstract. But the drop of 205 million barrels in stocks outside the Persian Gulf in March suggests that industries and households will soon face a market where physical crude — not the Brent benchmark — has reached around $150 per barrel.

As Inés Cardenal, spokesperson for the Spanish Fuel Industry Association (AICE), explains, the market is reacting not only to price, but also “to a serious supply crisis where the fear of product shortages — especially of derivatives like kerosene — is prompting governments to recommend energy-saving measures and teleworking,” as the European Commission suggested this week.

That anxiety is compounded by a shift in global refining capacity: while Europe has been losing refineries, the Middle East has been building massive new complexes that are now unable to supply global markets because of the conflict with Iran and the blockade of Hormuz. As a result, key products like kerosene and diesel are becoming harder to obtain.

A second factor behind falling demand is the widening disconnect between crude prices and the prices of refined products, where pressure on industry is even more acute. Refining margins have temporarily surged as fuels such as LPG and aviation fuel have become more expensive, rising faster than crude itself. For industrial consumers, the most important factor is not the price of crude oil, but rather the cost of these inputs. In parts of Asia, petrochemical producers have already begun cutting operating rates because prices have become prohibitive — an adjustment that could ripple through the broader industrial chain.

A further element reinforcing this dynamic is uncertainty itself. In periods of extreme volatility — such as the current war — price elasticity of demand tends to shrink, as firms and households postpone purchases due to the lack of clarity. When purchases finally do occur, they are made more abruptly, amplifying the impact of prices on economic activity. Raymond Torres from the think tank Funcas notes that such an environment also encourages efficiency gains and energy substitution. These shifts take time and investment to materialize, but they can ultimately displace fossil‑fuel use in favor of more competitive alternatives like renewables.

The last time the economy suffered a similar episode of demand destruction was in 2020, but for very different reasons: the COVID-19 pandemic forced a sudden halt in activity. During that period, mobility ground to a halt, but the oil supply was so abundant that prices actually fell. Currently, however, the adjustment is due to a real physical shortage, with more than 13 million barrels of exports per day effectively removed from the market. In this regard, Cardenal insists that even if the war ends now, supply would not rebound overnight due to the infrastructure damage and the logistical complexity of the energy system.

Spain faces a somewhat different situation. Thanks to heavy investment between 2008 and 2012, its refining system has an unusual degree of flexibility by European standards, allowing it to process crude from a wide range of origins — from the Americas to Africa — and partially mitigate its dependence on the Middle East. Spanish refineries are also optimized to maximize output of middle distillates, covering a large share of domestic demand for products like jet fuel. This does not eliminate exposure to global risks, but it gives Spain more room to maneuver than other European countries.

Analysts caution that it is too early to know how long this demand adjustment will last. However, Manuel Hidalgo, an economist at EsadeEcPol, maintains that it’s not a permanent loss but rather a strategic decision by buyers with reserves. In his opinion, it makes no financial sense for a company or government to acquire large volumes of crude oil at the height of a geopolitical conflict if there’s an expectation that the conflict will end soon and that the price per barrel will fall.

When analyzing the magnitude of the crisis, Hidalgo downplays the tension by placing prices in a historical context adjusted for inflation. He argues that current prices do not represent an extreme emergency since, in real terms, they are roughly equivalent to what they were​​ five years ago. “From this perspective, the market has not been driven by a kind of speculative frenzy, but rather shows a moderate and reasonable increase given the current uncertainty,” he explains.

Furthermore, the Persian Gulf has lost strategic importance in recent years due to the emergence of energy producers such as the United States and Canada, and Venezuela’s return to the international stage. This means that, although the Strait of Hormuz remains vital, the world no longer depends on this single artery for its oil supply.

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