Oil Markets Nearing ‘Red Zone’ as Holiday Season Nears, IEA Chief Warns

Oil markets will enter a “red zone” by July and August as stockpiles dwindle before the summer travel season amid a shortage of fresh oil exports from the Middle East, the executive director of the International Energy Agency warned Thursday.

Fatih Birol added that the most important solution to the energy shock from the Iran conflict was a full and unconditional reopening of the Strait of Hormuz.

Speaking to the London thinktank Chatham House, Birol said it was open to IEA members to release more strategic oil reserves as they did in March, and said the IEA stood ready to coordinate. Up to 80% of the IEA’s collective reserves have not been released.

He warned that while stocks were eroding, no new oil was coming from the Middle East and demand was rising, driven mainly by the travel season. “This may be difficult and we may be entering the red zone in July-August if we don’t see some improvements,” Birol said.

Birol added that he had “never seen the dark and long shadow of geopolitics so dominant in the energy sector,” and said he feared extremist parties in Europe might opportunistically abuse the coming inflation to argue it represents the failure of existing political systems when, in truth, the price of oil is set internationally.

Birol also said Iran did not have endless storage capacity and its industry would face difficulties.

The IEA chief warned that he regards the oil shock as more dramatic than three previous shocks: in 1973, 1979, and the 2022 crisis caused by the Russian invasion of Ukraine. He said 14 million barrels of oil per day were missing from the market due to the disruption.

He saw no prospect of oil production recovering fully for at least a year, including in the United Arab Emirates, and said some countries heavily dependent on oil revenues to fund their budgets, such as Iraq, might find it impossible to reinvest in oil production for many years.

Overall, the reputation of the Middle East as a secure supplier of energy had been damaged, he said, predicting that countries would pay a premium for supplies from secure sources and for renewable energy.

Birol predicted that governments around the world would review their energy strategies in the next few years and “look for new options” for fuel imports. He added that countries would also turn to other energy sources, including renewables, nuclear—and, to a lesser extent, coal—and that domestically, energy production “that makes economic sense will get a push.”

His warning came as Pakistan, the mediator in talks between Iran and the United States, hit difficulties after claims that a breakthrough was imminent.

Iran’s supreme leader, Mojtaba Khamenei, reaffirmed that Iran would not allow its stockpiles of highly enriched uranium to be exported to a third country, such as Russia. That stance does not rule out the stockpile being downblended to much lower levels of purity under the administration of the UN nuclear inspectorate, the International Atomic Energy Agency (IAEA).

President Donald Trump has been making typically contradictory noises about the need for the stockpile to be exported, and how he will react if no agreement is reached with Iran.

Pakistan’s interior minister, Mohsin Naqvi, remained in Tehran on his second visit of the week, underlining the severity of the crisis.

It had been expected that Pakistan’s military chief, Field Marshal Asim Munir, would visit Tehran on Thursday to try to narrow the gaps between the two sides, but a postponement of his visit suggested Pakistan’s efforts were not bearing fruit.

Trump recently downplayed the importance of exporting the enriched uranium, saying last Thursday on Fox News that the United States wanted the enriched uranium “more for public relations than it is for anything else.” At least half of the enriched uranium, central to building a nuclear bomb, is believed to be buried at the bombed Isfahan nuclear facility.

He elaborated: “We have nine cameras on that site, on those three sites, 24 hours a day,” Trump said. “We know exactly what’s happening. Nobody’s even gotten close to it.”

Still, the president said he ultimately would rather get the material out of the country. “I just feel better if I got it, actually,” Trump said. “But it’s, I think it’s more for public relations than it is for anything else.”

Iran has 440.9 kilograms (972 pounds) of uranium enriched up to 60% purity, which is a short, technical step away from weapon-grade levels of 90%, according to the IAEA.

Separately, Iran announced the boundaries of the proposed Persian Gulf Strait Authority, the body it has established to oversee the movement of commercial shipping through the narrow strait on Iran’s southern coast.

The United Arab Emirates’ senior diplomatic adviser, Anwar Gargash, described the map showing the boundaries as a fantasy. He said: “After the brutal Iranian aggression, Tehran’s regime was attempting to solidify a new reality born out of an obvious military defeat.”

Gargash added that attempts to control the strait or infringe upon the UAE’s maritime sovereignty were unrealistic and “a fantasy.”