War Forces Global Oil Demand Toward COVID-Style Slump

Bangla Press Desk:  Energy supply disruptions caused by the war in Iran have slowed the global economy, pushing countries to applying energy-saving measures and explore alternative supply channels.

Countries across Asia and Africa are weighing up work-from-home policies and stimulus measures enforced during the COVID pandemic, as they scramble to deal with the impact of the Iran war.

Asia

Asia is at the frontline of the fuel crisis, buying more than 80% of the crude that transits the Strait of Hormuz, which has been almost totally blocked by Iran since the war broke out on February 28.

No country in the region has enforced work-from-home measures yet, but some have said they are on the table.

South Korea's Energy Minister Kim Sung-whan said it was a good idea, when asked on March 24 about an International Energy Agency recommendation for people to work from home.

The IEA, which agreed on a record release of around 400 million barrels of oil from strategic stockpiles to deal with the crisis, has outlined proposals to ease oil price pressures such as working from home and avoiding air travel.

IEA Executive Director Fatih Birol repeated those calls at a conference in Sydney this week.

Industrial powerhouse South Korea on March 24 launched a public campaign asking people to cut shower time, charge phones during the day and run vacuums on weekends.

"We will consult with relevant ministries and actively consider measures for work-from-home,” Energy Minister Kim told a briefing.

The Philippines, which relies heavily on Middle Eastern oil for its energy needs, shortened the work week in some government offices earlier this month. President Ferdinand Marcos declared a state of national energy emergency saying the conflict poses an "imminent danger" to the country's energy supply.

Pakistan closed schools for two weeks and said office workers would work more from home. The island nation of Sri Lanka declared a public holiday every Wednesday to help make its fuel supplies go further.

Singapore, an Asian financial hub, urged people and businesses to switch to energy-efficient appliances, use electric vehicles and set the temperature higher on their air conditioners.

Thai Prime Minister Anutin Charnvirakul ordered bureaucrats to suspend overseas trips, set air conditioning temperatures above 25 degrees Celsius (77 degrees Fahrenheit), avoid suits and ties, use stairs instead of elevators, and work from home.

Cost-of-living relief

Some countries have turned to stimulus measures as rising fuel costs bite into household budgets.

The Japanese government said on ⁠March 24 it plans to tap 800 billion yen ($5 billion) in reserve funds to finance subsidies aimed at keeping gasoline prices at about 170 yen per litre on average. The measure would cost as much as 300 billion yen per month.

New Zealand said on March 24 it would provide temporary financial support of NZ$50 ($29.30) every week from April for low-income families.

In neighbouring Australia hundreds of petrol stations are running dry from panic buying and shortages, which are acutely hitting the remote regional areas of the vast continent.

The centre-left government introduced ⁠legislation in the parliament to double penalties for fuel price gouging.

Several Asian countries have also released petrol and diesel from domestic reserves and temporarily loosened gasoline and diesel quality standards to increase supply.

Policy dilemma

The glaring contrast with the pandemic, however, is that central banks are not rushing to cut interest rates. In fact, they are considering hikes.

During the pandemic, demand collapsed as many economies were essentially shuttered for health reasons, so policymakers responded with massive stimulus.

Now, the Reserve ⁠Bank of Australia has already hiked rates twice this year. It cited energy risks as a material risk to inflation and a reason for raising rates to a 10-month high last week.

Investors expect Japan, Britain and Europe will all raise rates in coming months, and pressure on Asian economies may be even more acute as their currencies slip against the dollar.

"Central banks face a classic policy dilemma when oil ⁠prices surge – inflation rises but growth might weaken," Jennifer McKeown, chief global economist at Capital Economics, said in a note last week.

"The right response depends crucially on why oil prices are rising, how persistent the shock is, and whether inflation expectations are at risk," she added.

Africa

Various countries in Africa face fuel shortages triggered by the disruption to oil and liquefied natural gas shipments through the Strait of Hormuz, a key route for about one-fifth of global energy supplies.

Energy rationing

Mauritius, which relies on imported fossil fuels, has seen its heavy fuel oil supply run low after a shipment expected on March 21 failed to arrive, leaving just 15-20 days of stock, Energy Minister Patrick Assirvaden said on March 23.

In Kenya, Energy Minister Opiyo Wandayi said on March 25 the country had sufficient stock and urged consumers not to panic buy or hoard. The announcement came after independent fuel retailers warned that about 20% of outlets were short on supplies after the government kept ⁠pump prices steady despite surging global costs.

Uganda is also facing dwindling fuel stocks. Energy Minister Ruth Nankabirwa said in a video on X that it has diesel and petrol stocks sufficient for 21 and 26 days, respectively, and plans to explore alternative supply channels.

Meanwhile, South Sudan's capital, Juba, faces electricity rationing, while drivers of tuk‑tuk taxis in Somalia’s capital are abandoning their livelihoods as fuel prices surge as passengers have dropped away due to rising fares.

Work from home 

In West Africa, Nigeria's Aliko Dangote, Africa's richest man, warned after meeting President Bola Tinubu that prolonged disruption could force work-from-home measures similar to during the COVID pandemic.

In South Africa, a spike in purchases ahead of an expected steep April fuel-price increase, rather than supply constraints, is causing isolated diesel stock-outs at filling stations and among farmers, Fuels Industry Association head Avhapfani Tshifularo said.

There’s also another unforeseen consequence for South Africa. Ship-refuelling companies along Africa's coast are seeing a surge in business as more vessels divert around the Cape of Good Hope.