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Global energy markets, such as those for oil, gas, and coal, are highly sensitive to a variety of world events—especially during times of crisis. As someone with over 30 years in the energy industry, I’ve witnessed how war, political instability, pandemics, and economic sanctions can significantly disrupt these markets.
### A Look at the Basics
Firstly, consider the economic fundamentals of supply and demand. The primary concern in current crises involving Israel, the U.S., and Iran is that Iran—being a major oil-producing country—might suddenly expand the conflict, jeopardizing neighboring countries’ ability to supply oil globally. Oil wells, refineries, pipelines, and shipping lanes are crucial for energy markets; they can be vulnerable during a crisis due to deliberate sabotage or collateral damage from military action.
For example, after Saddam Hussein invaded Kuwait in August 1990, Iraqi forces placed explosive charges on Kuwaiti oil wells and detonated them in January 1991. This resulted in months of fires, releasing millions of barrels of oil and hundreds of millions of cubic meters of natural gas into the environment—rather than being sold and used productively.
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### Logistics Can Disrupt Markets
Logistics can also cause market disruptions. Closing critical maritime routes like the Strait of Hormuz or the Suez Canal can lead to transportation delays, affecting supply. When supply is lost due to decreased production or blocked transportation routes, less oil becomes available for the market, causing prices to rise and become more volatile.
On the other hand, demand can also fluctuate dramatically. During the 1990-1991 Gulf War, U.S. forces alone used over 2 billion gallons of fuel, according to an Army analysis. Conversely, during the COVID-19 pandemic, industries shut down and travel ceased, resulting in a significant drop in energy demand.
### Stockpiling and Speculation
During crisis periods, countries and companies often start stockpiling oil and other raw materials instead of buying only what they need immediately. This creates more imbalance, leading to price volatility that affects both consumers and producers.
### Regional Considerations
Many of the world’s energy reserves are located in regions with unstable political climates. Wars, revolutions, and diplomatic disputes can raise concerns about supply, demand, or both. These worries send shockwaves through global energy markets.
Economic sanctions, such as those restricting trade with Iran, Russia, or Venezuela, can distort production and investment decisions and disrupt trade flows. Sometimes, markets react even before sanctions are officially in place, causing prices to spike due to speculation.
For instance, in 2008, India and Vietnam imposed rice export bans, and rumors of additional restrictions led to panic buying, nearly doubling prices within months.
### The Role of Speculation
Energy commodities like oil and gas aren’t just physical resources; they’re also traded as financial assets. During uncertain times, traders react to news and forecasts, sometimes in large groups, which can shift the market based on their fears or hopes.
On June 22, 2025, for example, the Iranian parliament passed a resolution authorizing the closing of the Strait of Hormuz. Immediately, oil prices started rising despite the strait still being open with unimpeded oil tanker traffic. The next day, Iran launched a missile strike on Qatar, but coordinated to minimize damage and casualties. Traders anticipated that the Supreme Council would not close the strait, causing oil prices to fall.
### Broader Economic Impacts
International crises can also cause wider economic changes, affecting energy markets. If a crisis sparks a recession, rising inflation, or high unemployment, it tends to reduce energy consumption. When the situation stabilizes, recovery efforts can mean increased energy use. However, this is like a pendulum swinging back and forth, with energy markets caught in the middle.
Renewable energy isn’t immune to international crises either. While its supply isn’t tied to geopolitical relations, overall economic conditions still affect demand. A crisis can disrupt supply chains for equipment needed to harness renewable energy, such as solar panels and wind turbines.
### Conclusion
Energy markets are so jittery during international crises due to imbalances between supply and demand, vulnerable infrastructure, political tensions, corporate worries, and speculative trading. Understanding these dynamics is crucial for navigating the ups and downs of energy markets in a crisis-prone world. The solutions aren’t simple, but being informed is the first step toward stability.
📚 Reading Comprehension Quiz
What factor has historically disrupted global energy markets, such as those for oil and gas?
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