How Will The Energy Crisis Affect Global Supply Chains?

The global supply chain infrastructure is facing its most severe disruption in recorded history, according to assessments from the International Energy Agency (IEA).

The organisation's Executive Director, Fatih Birol, delivered a stark warning this week about the operational catastrophe unfolding in the wake of the US-Israeli conflict with Iran, highlighting unprecedented challenges to global logistics networks and distribution systems.

Speaking at the National Press Club of Australia in Canberra on Monday, Fatih warned that the crisis now dwarfs even the most turbulent periods of the twentieth century's energy history.

"This crisis, as things stand, is now two oil crises and one gas crash put all together," he said.

Critical chokepoint closure disrupts global logistics

The current crisis could represent a convergence of three separate supply shocks occurring simultaneously, affecting oil distribution networks twice over and natural gas supply chains once.

This perfect storm of logistics disruptions is creating cascading effects across global transportation and distribution infrastructure.

The effective closure of the Strait of Hormuz represents an existential threat to global supply chain operations.

This narrow waterway, which typically facilitates the movement of roughly 20% of the world's oil and gas shipments, has been rendered largely impassable.

The disruption has removed approximately 11 million barrels per day from global distribution networks, more than double the combined supply shortfalls experienced during the 1973 and 1979 energy crises.

"The global economy is facing a major, major threat today and I very much hope that this issue will be resolved as soon as possible," says Fatih.

The impact on liquefied natural gas distribution has proved equally severe.

Transportation networks have lost access to around 140 billion cubic metres of LNG capacity, nearly double the 75 billion cubic metre shortfall that followed Russia's invasion of Ukraine in 2022.

This reduction in available supply has forced logistics operators and supply chain managers to reconfigure distribution routes and seek alternative sourcing arrangements.

At least 40 energy production facilities across nine countries have sustained severe damage, significantly compromising upstream supply chain capacity.

Among the most critical losses is the Ras Laffan complex in Qatar, the world's largest LNG production facility, which has suffered substantial damage.

The facility's compromise has created immediate bottlenecks in global LNG supply chains and forced major adjustments to distribution schedules across multiple continents.

Transportation costs surge amid distribution challenges

The logistics implications have manifested rapidly in transportation costs. Oil prices have surged more than 50% since US-Israeli strikes on Iran on 28 February, with Brent crude hovering around US$113 a barrel.

For supply chain managers, this translates directly into increased freight costs, higher inventory carrying costs and pressure on distribution budgets across all modes of transportation.

The closure of shipping lanes through the Strait of Hormuz has forced carriers to adopt alternative routes from the Persian Gulf to global markets.

These diversions add significant time and cost to supply chains, creating inventory management challenges as companies struggle to maintain service levels whilst managing extended lead times.

The uncertainty surrounding reopening timelines has made demand forecasting and inventory planning particularly challenging for logistics professionals.

Diplomatic developments have provided limited relief.

US President Donald Trump issued threats on 20 March to target Iranian infrastructure unless Tehran agreed to reopen the Strait of Hormuz.

Following discussions between Washington and Tehran, Trump subsequently announced a five-day postponement of any military action.

However, the absence of a clear framework for sustained negotiations means supply chain managers cannot yet rely on stable transportation routes or predictable distribution networks.

Meanwhile, Fatih was unambiguous about what the only lasting solution looks like.

"Stock release will help to comfort the markets, but this is not the solution," he said, describing the reopening of the Strait of Hormuz as "the single most important solution to this problem".

Demand-side measures target operational resilience

With critical shipping infrastructure still compromised, the IEA published a report on 20 March identifying 10 demand-side measures that could enhance operational resilience across supply chains.

These proposals target sectors representing the largest share of fuel consumption, including road transport, which accounts for around 45% of global oil demand.

The recommendations focus heavily on transportation network optimisation.

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Measures include encouraging remote working to reduce commuting-related logistics demand, reducing highway speed limits by at least 10 kilometres per hour to improve fuel efficiency across freight networks and promoting public transport to ease pressure on distribution infrastructure.

Additional proposals aim to enhance distribution efficiency through increased car-sharing and carpooling, implementing number-plate rotation schemes in large cities to reduce congestion affecting commercial deliveries and improving driving efficiency for commercial freight operations.

These measures could help logistics providers maintain service levels whilst managing fuel constraints.

Beyond road transport, the IEA recommendations address air freight networks, urging reductions in non-essential air travel to preserve jet fuel for critical cargo operations.

The agency also proposes that industrial facilities switch from liquefied petroleum gas to alternative feedstocks such as naphtha where possible, potentially freeing up LPG supplies for essential uses and reducing competition for constrained fuel resources.

The IEA acknowledges that demand-side interventions cannot replace lost supply capacity, but widespread adoption could provide meaningful relief to strained distribution networks.

The coordinated release of 400 million barrels of oil from IEA member countries' emergency reserves, the largest deployment in the agency's history, is already under way, providing temporary buffer stock to support supply chain continuity.

For supply chain professionals, inventory management strategies must now account for sustained uncertainty.

The combination of compromised production facilities, closed transportation chokepoints and volatile diplomatic conditions creates a planning environment unlike any in recent decades.

Whether emergency stock releases, demand restraint measures and diplomatic efforts will prove sufficient to prevent further supply chain deterioration remains deeply uncertain.

Logistics networks designed for efficiency and just-in-time delivery are now being tested for resilience against disruptions that exceed historical precedents.