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…Says losses higher than 1973 oil embargo, 1990 Gulf war
The International Monetary Fund (IMF) has warned that the global oil market is becoming increasingly vulnerable to fresh supply disruptions, saying the emergency buffers that shielded the world economy from the recent Middle East war shock have been largely depleted.
In a blog by Jean-Marc Natal and Azim Sadikov, the Fund said although the war triggered the biggest disruption to the global oil market in decades, crude prices did not spiral out of control because the market entered the crisis with surplus supply, higher output from non-Gulf producers and substantial oil inventories. However, it cautioned that those safeguards have now been significantly eroded.
According to the IMF, crude prices initially spiked after the conflict erupted before stabilising in the $90 to $100 per barrel range, far below levels many analysts had anticipated given the scale of the supply disruption.
The Fund explained that the closure of the Strait of Hormuz cut off about 20 million barrels per day of crude oil and refined petroleum products, representing roughly one-fifth of global oil consumption.
While Saudi Arabia diverted exports through its pipeline to the Red Sea port of Yanbu and the United Arab Emirates maximised shipments through Fujairah, these alternative routes were able to replace only a small portion of the lost volumes.
The conflict also disrupted the supply of refined products, particularly diesel and aviation fuel, as the Gulf region accounts for about 10 per cent of global production of both products.
By the end of May, the IMF estimated that more than 1.1 billion barrels of crude oil, equivalent to about 10 days of normal global consumption, had failed to reach international markets.
It noted that the disruption exceeded the supply losses recorded during the 1973 oil embargo, the Iran-Iraq war and the 1990 Gulf War at comparable stages.
The IMF identified three major factors that prevented a prolonged oil price spike.
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First, high prices forced consumers, especially in Asia, to reduce oil consumption while industries increasingly switched to alternative energy sources such as coal and renewables. Although transport fuel demand remained relatively resilient because of fuel subsidies, tax rebates and price caps introduced by several governments, the Fund warned that such measures imposed significant fiscal costs.
Second, oil production outside the Gulf rose much faster than expected. Output increased by nearly two million barrels per day above 2025 levels, led by the United States, while Venezuela, Guyana and Russia also expanded production to help offset supply shortages.
Third, governments and oil companies released large volumes from commercial inventories and strategic petroleum reserves to bridge an estimated market deficit of about four million barrels per day between March and May.
Despite these interventions, the IMF warned that global oil inventories have been drawn down to levels that leave the market less prepared for another major disruption.
“Energy markets had room to manoeuvre and absorb the initial shock. That room is now smaller and shrinking further as spare capacity has been deployed, demand has compressed, and inventories have been drawn down,” the Fund stated.
Looking ahead, the IMF said a lasting agreement between the United States and Iran could help restore confidence and improve oil flows through the Strait of Hormuz. However, it warned that even if the waterway is fully reopened, industry estimates suggest it would still take between two and three months before a significant share of stranded oil reaches global markets.
The Fund also expressed concern that prolonged production shutdowns could permanently reduce oil output in some producing regions where financing to restart operations is limited.
To strengthen global energy security, the IMF urged policymakers to rebuild depleted oil inventories, diversify energy sources and transportation routes, and focus government support on vulnerable households rather than broad fuel subsidies that weaken public finances and discourage energy efficiency.
The IMF concluded that while market flexibility and swift policy responses helped prevent a deeper energy crisis during the recent conflict, the global economy is now entering a period with fewer protective buffers, making it more susceptible to future oil price shocks if geopolitical tensions escalate again.
