Rising geopolitical threats to global oil and natural gas supplies—in addition to concern over human-caused climate change—are increasingly hurting the appeal of fossil fuels as reliable, safe energy sources, the head of the International Energy Agency, Fatih Birol, said on 7 November.
Global oil markets are currently focused on the fallout from the Israeli ground offensive against Hamas in Gaza amid concerns it could trigger wider regional conflict, hitting oil exports given an aggressive response from Iranian-backed Hezbollah and from Iran itself.
"Oil markets are on edge," Birol said in an interview with S&P Global Commodity Insights. "The issue is if one or more than one producing country is directly involved in the crisis or not. If that's the case, we may well see that the markets could be negatively affected ... in terms of supply disruptions and high oil prices."
Fear of the conflict spreading wider in the Middle East has added to the bullish mood in oil markets, fueled by a mixture of OPEC+ voluntary supply cuts and heightened geopolitical risks from the ongoing conflict in Ukraine and sanctions against Russia.
The West's sanctions on Russian oil exports have reshaped crude and diesel flows to Europe since Moscow invaded Ukraine last year, while Yemen has also emerged as a potential flash point for global oil markets if peace talks with Iranian-backed Houthi militants collapse due to the conflict between Israel and Hamas escalating across the Middle East, analysts have warned.
"I think, if I was not an energy person but a man on the street, I would think that the claims that oil and gas are safe and secure choices for energy are getting weaker and weaker," Birol said. "This is something that the oil and gas industry needs to think about. They are losing a lot from the [narrative] that they are a reliable, secure, and safe energy choice."
"When I look at the natural gas markets, what happened 2 years ago, with the Russia/Ukraine situation and gas prices suddenly increased substantially, they became volatile and the availability of gas became a key question," he said. "Many Europeans thought 'Are we going to freeze or not here?' Coming back to oil, people are on edge [asking]: 'Are we going to see oil prices skyrocketing? What will be the price of diesel here if there's a supply disruption? Are we going to see that the Hormuz Strait is going to be closed. If it is closed, who is going to supply the oil?'"