IEA says Middle East fighting adds to energy supply worries

The head of the International Energy Agency said on Tuesday that renewed fighting in the Middle East has increased concerns about energy supplies, while oil markets still have some buffers against disruption.

IEA Executive Director Fatih Birol said in a statement that fighting affecting the Strait of Hormuz and energy infrastructure in the region had raised security-of-supply concerns and uncertainty over the market outlook.

Birol said crude oil markets were still being helped by cushioning factors. He cited higher exports from several countries and oil from Saudi Arabia and the United Arab Emirates reaching markets through alternative routes.

One of Saudi Arabia's main alternatives, a pipeline route used to load tankers at the Red Sea port of Yanbu, is under threat after Iran's Yemeni allies, the Houthis, said they would blockade Saudi ports.

The source said oil markets have feared for months that the Houthis could resume attacks on shipping in the Red Sea and Gulf of Aden, as they did during the Gaza war, which would remove more crude from global markets. The first market reaction to the Houthi announcement was restrained, however, after Iran indicated that mediation efforts were continuing, easing investor concern.

Birol said threats to the Bab el-Mandeb Strait, the passage between the Red Sea and the Gulf of Aden, add to the concerns because the route has become more important as a way to bypass the Strait of Hormuz.

The IEA advises industrialised member countries and helps coordinate releases from strategic oil reserves when markets are disrupted. Birol said current government releases from these reserves have given markets considerable relief and that countries still hold ample reserves.

He also warned that there was no room for complacency on oil security. He pointed to a fall in available commercial inventories and said low refining activity was making supplies of refined products such as petrol and diesel tighter than crude supplies.

Birol said additional liquefied natural gas supplies from the United States and Canada have offset about 70 percent of lost supply through the Strait of Hormuz. But he warned that further delays in resuming Gulf exports would affect all LNG importers, including Europe as it seeks to refill gas storage before next winter.