The International Energy Agency on Wednesday warned that the global economy could be whipsawed by both disruptions to oil supplies and a sharp fall in demand resulting from Russia’s invasion of Ukraine.
The organization said the world could be heading into what it called “the biggest supply crisis in decades.”
In its monthly Oil Market Report published Wednesday, analysts estimated that there was the potential for as much as about one-third of Russian oil production, or about three million barrels a day, to be shut down in April as sanctions and restrictions on major oil companies, banks and shipping firms take hold.
The agency also said that the combination of surging commodity prices and Western sanctions on Russia were likely to depress global economic growth and demand for oil for the rest of 2022. The agency cut its forecast for global demand for oil by a hefty 1.3 million barrels a day, or more than 1 percent, for the next three quarters.
The agency said that demand would fall particularly sharply in Russia because of a contraction of economic activity. Consumption of jet fuel was likely to be cut almost by half as international travel out of Russia is halted, in part to avoid the seizure of leased aircraft.
The worsening economic prospects, the agency said, helped explain the recent cooling of surging oil prices. Futures have gyrated in recent days with Brent crude, the international benchmark, rising to around $128 a barrel on March 8 before falling back below $100 a barrel on Tuesday. On Wednesday, Brent was up about 3 percent to about $102.70.
So far the reshuffling of the oil market to deal with the sanctions on Russia, the world’s largest oil exporter according to the agency, has been limited.
The agency said there was little sign that Middle Eastern oil producing countries were increasing supplies to markets like Europe that normally consume large volumes of Russian oil. And despite increasing efforts to send Russian crude to buyers in China and India, two giant oil importers that have not backed the sanctions, high costs and “reputational risks” are complicating sales, the agency said.
Only Saudi Arabia and the United Arab Emirates — along with Iran, which is still under sanctions that restrict its oil sales — have the ability to quickly add large volumes to make up for whatever is lost from Russia. But OPEC Plus, the producers’ group led by the Saudis and Russia and includes the U.A.E. and Iran, recently declined to do more than its usual monthly 400,000-barrel-a-day increase, saying the market was “well-balanced.”