Today's Edition
A. SREENIVASA REDDY (ABU DHABI)
A sharp rise in crude oil and gas prices amid ongoing geopolitical tensions could weigh on global economic growth, although the energy industry is demonstrating resilience and capacity to adapt, according to a white paper released by ADIPEC.
The disruption of energy supply chains, particularly through the Strait of Hormuz, has removed a significant portion of global supply from the market. Around 15 million barrels per day of oil exports and 11 billion cubic feet of gas that typically transit through the Strait have been affected, creating tight supply conditions and upward pressure on prices.
Despite these challenges, the paper highlights ongoing efforts by producers and governments to stabilise markets. Saudi Arabia has maximised flows through the East-West pipeline, while the International Energy Agency has released 400 million barrels from strategic petroleum reserves to ease supply pressures.
However, supply constraints remain significant. Close to 9% of global oil production is currently offline, primarily from Saudi Arabia and Iraq, leaving the market short by at least 10 million barrels per day, according to Simon Flowers, Chairman and Chief Analyst of Wood Mackenzie.
Wood Mackenzie estimates that the industry could potentially add around 1.8 million barrels per day from existing projects within a year, providing some relief, although not enough to fully offset the supply gap.
On the gas side, additional supply of around 3.5 billion cubic feet per day could be brought online, which may help soften the impact of disruptions, particularly in LNG markets.
The paper notes that while elevated prices pose risks to global growth, they also reinforce the importance of energy security and diversification. According to Wood Mackenzie’s Head of Economics, Peter Martin, for every 10% increase in oil prices, global GDP growth declines by about 0.13 percentage points.
A scenario in which Brent crude averages $90 per barrel in 2026 could push global growth below 2%, down from a pre-conflict estimate of 2.5%, with major economies such as the US and Europe facing recession risks. A more extreme scenario of $125 per barrel could trigger a global recession, the white paper said
At the same time, the report underscores the resilience of the global energy system and the adaptability of producers. Gulf national oil companies are leveraging spare capacity, storage infrastructure and alternative export routes to maintain supply, while investments in new LNG projects and infrastructure are expected to support market rebalancing over time.
The paper also points to emerging opportunities for the industry. Infrastructure diversification, including bypass routes such as pipelines and terminals, along with strategic storage hubs and expanding LNG capacity, could strengthen supply chain resilience and reduce reliance on critical chokepoints.
