The International Energy Agency describes the Strait of Hormuz closure as the most significant supply disruption in the history of the global oil market, posing a severe risk as one-fifth of global oil transits there daily. Oil prices rose by more than 4% to about $75 a barrel as Israeli troops moved into Lebanon and Iran launched a missile attack on Israel, yet prices have fallen more than 10% in the past three months despite escalating tensions. The IEA proposed a collective release of 400 million barrels of oil from emergency reserves on March 10, approved by all member countries on March 11.
Ship traffic in the Strait of Hormuz is at a standstill despite a fragile peace agreement between the US and Iran, with the strait handling up to 20 million barrels per day, almost 30% of world oil trade. Analysts at Capital Economics said closing the strait could drive oil to $100 per barrel, but Iran is unlikely to close it long-term due to potential US military response. The cost of the Gulf conflict may exceed $50 billion following disruption in the Strait of Hormuz.
Sweden and Norway may need to reduce their energy consumption.
Recent military escalations have intensified the conflict, with Israel launching a targeted attack on an Iranian missile production site on October 26 in response to a ballistic missile attack, killing one civilian and four IRGC soldiers. On October 1, Iran launched approximately 180 ballistic missiles at Israel, with many intercepted by a US-led coalition, though some struck central and southern Israel, damaging air bases. On April 1, Israel allegedly attacked the Iranian consulate building in Damascus, killing 13 people, including seven IRGC members, prompting Iran to launch Operation True Promise, a massive aerial attack involving over 120 ballistic missiles, 30 cruise missiles, and 170 drones. Later in April, the Israeli Air Force launched a limited airstrike targeting an S-300 air defense facility in Isfahan, Iran, causing no extensive damage.
The conflict has expanded regionally, with the US stationing B-52 Stratofortress bombers and F-15 fighter jets in the area following the Israel-Iran clashes. Israel and the US reprimanded Iran for a severe retaliation, evoking the possibility of a direct attack on Iranian oil facilities. Iran's regional proxies, including Yemeni Houthis and Lebanese Hezbollah, have exchanged missile attacks with Israel, involving Israel in a multifront battle. In September, Israel initiated Operation Northern Arrows, a ground invasion into Lebanon as part of the Israel-Hezbollah conflict, and on September 27, Israeli aircraft attacked residential buildings in southern Beirut using bunker buster bombs in an attempt to kill Hassan Nasrallah.
It is a shared problem.
Additional incidents across the Middle East have heightened tensions, with an Iranian drone attack targeting fuel tanks at Kuwait airport, causing a large fire with no casualties reported. A tanker was hit by projectiles near Qatar, with the fire extinguished. Three Iranian cruise missiles struck Qatari territory, with two intercepted by Qatari armed forces.
Political context adds to the uncertainty, with Donald Trump winning 300 electoral votes, surpassing the 270 needed to win the presidency, becoming the only second leader to serve non-consecutive tenures. Trump said the US will 'leave' Iran in 2-3 weeks, and he also claimed Iran gave the US 20 boats of oil 'out of a sign of respect' through the Hormuz Strait.
Norway, unlike other producers, does not use oil as a power tool.
International diplomatic efforts are underway, with the UAE lobbying for a UN Security Council resolution to authorize military action to reopen the Strait of Hormuz. Meanwhile, the IEA's coordinated reserve release aims to mitigate immediate supply shortages.
Global commodity price projections show conflicting trends for 2025, with overall prices set to tumble to a five-year low amid an oil glut, limiting price effects even of a wider Middle East conflict. Brent crude is expected to fall to $73 per barrel in 2025, down from $80 in 2024, assuming no conflict escalation. Overall commodity prices will remain 30% higher than in the five years before the COVID-19 pandemic, with global oil supply expected to exceed demand by an average of 1.2 million barrels per day in 2025, a glut exceeded only during 2020 pandemic shutdowns and the 1998 oil-price collapse.
Norway is a stable and politically secure supplier, which is a big advantage compared to many other fossil energy producers.
Supply-demand factors underpin these projections, as China's oil demand has flatlined since 2023 amid industrial slowdown and increased electric vehicle and LNG truck sales. Non-OPEC+ countries are expected to ramp up oil production, and OPEC+ has 7 million barrels per day of spare capacity, almost double pre-pandemic levels. Iran supplies about 3 million barrels of oil per day, or 3% of world output, despite sanctions, and its control over the Red Sea through Houthi rebels in Yemen, who have been targeting shipping, adds another layer of supply risk.
Amid these disruptions, Australia and Singapore are forging a fuel security partnership, with Australian Prime Minister Anthony Albanese meeting Singaporean counterpart Lawrence Wong to secure fuel from regional allies due to Middle East conflict disruptions. Singapore is Asia's oil-trading hub and Australia's largest petrol supplier and major supplier of diesel and jet fuel. Australia supplies around one-third of Singapore's liquefied gas imports, while Singapore gets about 26% of its refined fuel from Australia. Australia imports 84% of its petroleum products, with two refineries operating, down from eight in 2005, and is concerned about fuel supply after Iran closed the Strait of Hormuz.
Norway will continue to deliver what they can to Sweden.
Singapore has three refineries with a combined capacity of about 1.2 million barrels per day, but production was cut after the Iranian closure of the Strait of Hormuz disrupted crude supply. According to NRMA statistics, Singapore accounted for close to 6 billion litres of Australia's fuel imports, with South Korea at 22.5% and India at 11.5%.
Sweden is faring relatively well in the global oil crisis thanks to its neighbor Norway, with a large part of Sweden's oil imports coming from Norway. According to Svenska Dagbladet, Thina Margrethe Saltvedt described Norway as a stable and politically secure supplier, which is a big advantage compared to many other fossil energy producers. She also noted that Norway, unlike other producers, does not use oil as a power tool, and will continue to deliver what they can to Sweden. The short-term impact on Sweden and Europe is expected to be higher prices rather than supply shortages, with no immediate risk of physical shortages in Sweden.
The IEA describes the closure as the most significant supply disruption in the history of the global oil market.
Norway faces future energy challenges, as it will fall into an electricity deficit due to delays in building wind power, becoming a net importer by the early 2030s before returning to a surplus after 2030. Norway's electricity needs will double to 260 TWh by 2050, accounting for 65% of total energy demand, with fossil fuel consumption decreasing by more than half and oil consumption in transportation dropping by 80%. Wind power is the only scalable alternative for significant new power production in Norway, with onshore and offshore wind facing delays due to opposition, high costs, and slow processes.
DNV projects Norway will add 13 GW of onshore wind and 21 GW of offshore wind by 2050, with wind accounting for 84% of new power production. The cost of fixed-bottom offshore wind is expected to fall from $88 per MWh in 2030 to $61 in 2050, and floating offshore wind from $280 to $82.
Nordic energy infrastructure is under threat, with Nordic countries investigating a 'serious threat' directed at their energy infrastructure from an actor linked to a foreign power, with a deadline for an attack. The Swedish Defence Radio Agency urged the energy sector to be more vigilant due to attacks on Poland's energy sector in December, but noted there is no specific threat behind the heightened alert.
Ireland has ruled out COVID-like restrictions to tackle the energy crisis, with Deputy Prime Minister Simon Harris noting it would take a year to fix infrastructure damage if the war ended today.
Food price trends remain elevated despite projected declines, with global commodity prices projected to plummet by nearly 10% from 2024 through 2026, with food prices falling 9% in 2024 and 4% in 2025, and energy prices dropping 6% in 2025 and 2% in 2026. However, food prices will remain nearly 25% above the 2015-2019 average.
The broader context includes the ongoing Hamas conflict, with an armed conflict between Israel and Hamas-led Palestinian militant groups ongoing in Gaza and Israel since October 7 last year. In July, Israel assassinated Ismail Haniyeh, Hamas's political leader, in Tehran during the inauguration of Iranian President Masoud Pezeshkian. According to Israeli intelligence, Tehran is expected to launch a counter-attack from Iraq in early November.