DEMAND DESTRUCTION
Those soaring fuel prices are increasingly feeding through into consumption patterns.
Global oil demand fell by nearly 5% in the second quarter of 2026 from a year earlier to 99.1 million bpd, according to International Energy Agency estimates. The declines have been uneven across regions and mostly concentrated in Asia and Europe.
Chinese diesel consumption fell an estimated 10% in May from a year earlier, while gasoline demand declined 5% and petrochemical feedstock use slumped 17%, according to IEA estimates.
In Europe, diesel consumption fell 5.7% in May from a year earlier to 4.5 million bpd, according to preliminary IEA data.
Reduced fuel consumption typically reflects lower economic activity. While economies can shift to other energy sources over time, the immediate response to spiking fuel prices is demand destruction.
Reflecting this risk, World Bank chief economist Indermit Gill told Reuters that the conflict in Iran could ultimately cut 2026 global growth to as low as 1.3%, from 2.9% last year.
Of course, there are short-term workarounds to soften the blow. India appears to be ramping up refining rates of Russian crude.
But the more oil routes are cut off, the more energy flows are redirected and the longer the disruption persists, the worse the economic pain could get.
DANGEROUS NEW PHASE
Further threatening the global economy is the steady depletion of global oil inventories. Strategic and commercial reserves helped cushion the abrupt loss of Middle Eastern supplies during the early stages of the Iran conflict, but those buffers have steadily eroded over months of disruption.
That leaves the world with far fewer shock absorbers than it had in February.
The latest escalation in the Red Sea therefore represents much more than just another shipping disruption. It threatens the only viable alternative route that kept Middle Eastern oil moving after Hormuz was blocked, exposing just how fragile the market's recovery has been.
For months, the oil market managed to adapt to one geopolitical shock after another. The simultaneous disruption of Hormuz and Bab el-Mandeb could push that capacity for adaptation to its limits. And as fuel shortages deepen and demand contracts, the world's energy crisis risks entering a far more damaging and economically painful phase.
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