The head of the International Energy Agency has said that renewed attacks in the Middle East increase concerns over energy supplies but that the market still has cushions to absorb the impact.
"The escalation in hostilities affecting the Strait of Hormuz and energy infrastructure in the region increases security of supply concerns and uncertainty over the market outlook," IEA Executive Director Fatih Birol said in a statement on Tuesday.
"For the moment, crude oil markets continue to benefit from several cushioning factors," he added, pointing to increased exports from several countries and Saudi and United Arab Emirates oil reaching markets by alternative routes.
However, Saudi Arabia's main alternative route of using a pipeline to load tankers in the Red Sea port of Yanbu is under threat as Iran's Yemeni allies, the Houthis, declared they would blockade Saudi Arabia's ports.
Oil markets have for months feared that the Houthis would return to attacking shipping in the Red Sea and Gulf of Aden - as they did during the Israeli genocidal war in Gaza - cutting off yet more crude from global markets.
The initial market reaction to the announcement by the Houthis was restrained, however, as Iran indicated that mediation efforts were still underway, calming investor jitters.
"Threats to the Bab al Mandeb Strait, which has become increasingly important as a route to bypass the Strait of Hormuz, exacerbate these concerns further," said Birol, referring to the narrow passage between the Red Sea and Gulf of Aden.
Record reserve release
IEA member countries have released about 290 million barrels of oil since 11 March, drawing from a record 400-million-barrel coordinated release agreed after the US-Israeli war on Iran triggered a surge in crude prices, while still holding over 1 billion barrels in reserve.
Birol noted Gulf exports remain below their late-June highs but well above levels seen between early March and mid-June. Separately, China's crude imports slumped 41.3 percent in June, their lowest level in almost a decade.
The IEA, in addition to advising its industrialised nation members, also helps them coordinate the release of their strategic oil reserves in reaction to market disruptions.
Birol added that ongoing government releases from these reserves have provided considerable relief to markets, and that nations continue to hold ample reserves.
However, he warned "there is no room for complacency on oil security" and pointed to a drawdown of available commercial inventories, with low refining activity contributing to tighter supplies of refined oil products like petrol and diesel than for crude oil.
Birol noted that additional supplies of liquefied natural gas from the United States and Canada have offset about 70 percent of lost supply via the Strait of Hormuz.
However, further delays in resuming Gulf exports "will be felt by all LNG importers, including Europe as it looks to refill its gas storage for next winter," he warned.
