Analysis: Energy fears persist despite fragile truce

The declaration of a two-week ceasefire in the war on Iran saw President Trump pull back from his threat to bomb Iran “back to the Stone Ages”.

 

An immediate sharp fall in the oil price reflected the global sense of relief. But fears the war would lead to a prelonged crisis have hardly been removed.

 

For one thing, the US and Israel have attacked Iran while in talks twice in the last 10 months. For another, reports suggest Iran has included maintenance of its control over the Strait of Hormuz in its proposals for ending the war – along with US withdrawal of combat forces “from all bases and points of deployment within the region” and the return of Iranian assets held since 1979.

 

More: Oil prices tumble as two-week ‘conditional’ US-Iran war ceasefire confirmed

 

Analysis: ‘No guarantee of anything’ in face of Iran war

 

Thirdly, Israel retains the capacity to disregard any agreement that does not match its aims.

One analyst’s assessment that “markets will breathe for at least a few days” summed up the temporary nature of any relief, while a leading economist noted: “Even if the Strait is opened, it could take months for energy supply to revert to normal levels.”

The pause followed multiple warnings of the consequences if Trump carried out his threats to destroy “a whole civilisation”.

EU energy commissioner Dan Jørgensen warned, “this will be a long crisis” with energy prices “higher for a very long time”. French finance minister Roland Lescure noted 30%–40% of Gulf refining capacity has already been damaged or destroyed and could take up to three years to restore.

The Bank of England’s financial policy committee warned the economic shock “will weigh on growth, increase inflation, tighten financial conditions [and] increase the likelihood that multiple vulnerabilities could crystallise”, and the International Monetary Fund gave notice that: “All roads lead to higher prices and slower growth.”

Hopes of avoiding a jet fuel shortage in the UK amid the conflict looked increasingly misplaced and may remain so.

Ryanair chief executive Michael O’Leary warned last week that “of all European countries, the one most vulnerable [on jet fuel] is the UK because of the market share the Kuwaitis have”. Kuwait is a major supplier of kerosene to Britain.

O’Leary noted: “If there is a risk to 10% or 20% of the supply in June, July or August, we’ll start looking at taking capacity out.”

Lufthansa chief Carsten Spohr told employees the group is preparing crisis plans including “cancellation of unprofitable routes” and “early retirement 
of aircraft”. 

A survey of European airports by operators’ association ACI Europe found one in 10 rated a jet fuel shortage as “high risk”.

Significantly, Iata reported even before the war: “Europe’s jet fuel supply is fragile, increasingly vulnerable [and] increasingly reliant on imports”, leaving airlines subject “to heightened risks [to] supply, pricing and operational stability, particularly if geopolitical shocks constrain jet fuel availability further”.