The geopolitical tensions between the US, Israel, and Iran have led to a significant global oil shock, pushing prices above $100 per barrel. This article explores how South African consumers can adapt to impending fuel price hikes and supply shortages, alongside recommendations from the International Energy Agency.
Image: William Fortunato/pexels
The global oil shock stemming from the geopolitical tensions taking place between the US, Israel and Iran has sparked new debate on how consumers around the world can navigate the fuel price increases and supply shortages that will arise from it.
This comes after fuel prices are set to soar with global oil prices hitting highs of over $100 per barrel. Closer to home, South African consumers are set to fork out an extra five to seven rands per litre of petrol and diesel from next month.
The International Energy Agency (IEA) has since set out a range of demand-side actions that governments, businesses and households can take to alleviate the economic impacts on consumers of the disruptions to oil markets stemming from the war in the Middle East.
The conflict has triggered the largest supply disruption in the history of the global oil market, with shipping through the Strait of Hormuz, which normally carries around 20% of global oil consumption, reduced to a trickle. Around 20 million barrels per day of crude oil and oil products typically transit the Strait.
"Restoring transit through the Strait of Hormuz remains essential to stabilise global energy markets. In the meantime, countries are acting on both supply and demand," the IEA stated.
A new IEA report identified ten measures that can be implemented quickly by governments, businesses and households.
The IEA further stated that these actions focus primarily on road transport, which accounts for around 45% of global oil demand, but also cover aviation, cooking and industry. Widespread adoption, where possible, would amplify their global impact and help cushion the shock.
The agency stated that one of the ways consumers and government are able to contend with the price shocks was to implement working from home where possible, something that became the 'new normal' during the Covid-19 pandemic.
The IEA said that in road transport, a combination of behavioural and policy measures can deliver rapid savings.
"Many of these measures have been implemented in the past and are again being considered in several countries. Working from home where possible reduces fuel demand for commuting, while lowering highway speed limits by at least 10 kilometres per hour cuts fuel use across both passenger vehicles and freight. Encouraging a shift from private cars to public transport, alongside measures such as alternating private vehicle access in large cities, can further reduce congestion and fuel consumption. Additional gains can be achieved through car sharing and more efficient driving practices, as well as improved efficiency in freight and delivery operations," the IEA stated.
Independent economist, John Loos, on Tuesday, echoed the advice handed out by the IEA, saying that the fuel price increases set to kick in next month, especially for urban commuters will imply a significant transport cost increase, and it is to be expected that many households will look for ways to manage such increases.
"While non-essential trips can be reduced, daily commuting for many households cannot easily be avoided, with many often using more fuel-intensive private transport. However, as the Covid-19 lockdowns with modern technology showed us, there is a significant group of office workers who do have a potential option for lowering commuting costs through working from home (WFH) or hybrid working," Loos said.
"I believe that we should expect the debate around remote and hybrid work to escalate once more, should fuel prices remain “elevated” for some time, with the employee group that is able to operate in a flexible way likely pushing for greater flexibility. While this may not be met with enthusiasm by all employers, certain labour market shifts could occur," Loos further said.
Fatih Birol, IEA Executive Director, said, “The war in the Middle East is creating a major energy crisis, including the largest supply disruption in the history of the global oil market. In the absence of a swift resolution, the impacts on energy markets and economies are set to become more and more severe.”
“As the global energy authority, the IEA is doing everything we can to support the stability of energy markets. We have recently launched the largest ever release of IEA emergency oil stocks, and I am in close contact with key governments around the world, including major energy producers and consumers, as part of our international energy diplomacy," Birol further said.
"In addition to this, today’s report provides a menu of immediate and concrete measures that can be taken on the demand side by governments, businesses and households to shelter consumers from the impacts of this crisis. It draws on the IEA’s decades of expertise in this field and highlights measures that have been proven to work in practice in different contexts. I believe it will be of use to governments around the world, in both advanced and developing economies, in these challenging times,” Birol said.
Follow Business Report on Facebook, X and on LinkedIn for the latest Business and tech news.