What happened to ‘the biggest energy crisis in history?’

When the US first started hostilities against Iran earlier this year, IEA boss Fatih Birol warned that the “biggest energy crisis in history” was imminent. While his warnings have materialised in terms of supply disruption, the market has so far been sheltered from the immediate effect, but analysts warn of future volatility.

In it’s latest Global Oil Outlook released in August 2026, the IEA warned that Global Oil inventories had “plunged” by 69 mb in July with some critical stockpiles, such as US strategic reserves, dropping to the lowest levels since 1983.

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The Ukraine war comparison

The closest recent comparator to the current situation is the Russian invasion of Ukraine in 2022, which reduced oil supply by only around 1 mb/d, or 1% of global output. In the months following the invasion, Brent crude surged to more than £112 per barrel.

Similar price surges were seen in April 2026 during the peak of the Iran crisis, only that this time, the supply disruption is significantly more severe with more than 14 mb/d so far, representing 14% of global oil supply, according to ECB research released at the end of July.

The picture is similar for gas prices. While the effects of gas supply shortages in 2022 were mainly felt in Europe, the Strait of Hormuz carries almost a a quarter of all global gas supplies. Nevertheless, gas was trading at 21.24 USD/MMBTU on the JKM, the Japan-Korea Marker, which is significantly lower than the 68 USD/MMBTU peak seen in 2022. In Europe, gas is trading at 60 EUR/MWh, compared to more than 330 during the peak of the crisis in 2022 EUR/MWh, according to data by Trading Economics.

Supply shock paradox: why didn’t global oil prices rise more?

Given the scale of supply disruption aptly predicted by Birol, why haven’t prices risen more? The explanations diverge suggesting that the answer is likely to be complex.

One factor key factor to consider is that that oil and gas markets were oversupplied when the 2026 crisis hit. This is in part due to the US ramping up its production of fossil fuels, but also due to declining demand for oil and gas from Asia, with China’s shift towards electric vehicles and renewables having booked considerable progress over the past four years, ECB research suggests.

Second, and related, the global economy is now significantly less dependent on oil compared to earlier crises. Recent analysis by Guinness Global Investors suggests that oil now accounts for only 2.9% of global GDP, compared to 5% during the 2008 Global Financial Crisis. The asset manager estimates that oil prices would have to rise to $150 per barrel for it to have a noticeable negative effect on the economy.

Having said that, the scale of the current crisis should not be underestimated, with some 10% of global oil supplies already having been destroyed and multiple ageing oil refineries being put out of action during the sustained shutdown.

Another mitigating factor in the short term have been US oil exports, which surged to more than 8m barrels a day as of May, resulting in windfall profits for US energy companies. But despite record levels of domestic oil and gas production, exports exceed production growth, resulting in a stark reduction of US inventories.

Jonathan Waghorn and Will Riley, portfolio managers for Guinness Global Investors believe that that a degree of “demand destruction” will be required to balance markets. In practice, this would mean a surge in prices to $125-$150 per barrel would be required to “force the market into balance.”

Indeed, the IEA’s latest report predicts that global oil demand will drop by 1.6 mb/d in 2026, this marks the first decline since 2020 and is a sharper reduction of demand than previously anticipated. While the IEA also predicts that global oil demand could expand again to 2.4 mb/d in 2027, it warns that the recovery will not be straightforward.

What do investors think?

While little risk seems to be priced into current stock market valuations, some analysts take a more cautious stance on future oil and gas prices. Simon Prior, fund manager of Premier Miton Corporate Bond Monthly Income Fund argues that while the market is right to remove some of the geopolitical risk premium, it is less right to start acting as though the physical system had already repaired itself.

“We are arguing that $79/bbl looks too close to the old, oversupplied world. Today’s market has thinner buffers, a restocking requirement, damaged LNG supply and a product-market inflation channel that may prove sticky. The market has priced relief. It has not fully priced repair. On that basis, oil looks too low, and the energy impulse into inflation is probably not finished” he warned at the end of June.

Riley and Waghorn point point out that the key challenge for oil markets right now is a lack of refinery capacity. "The bottleneck in the global refining system is a reminder that the world consumes oil products rather than oil per se" they warn, adding that this has caused product prices to rise sharply and refining margins to expand to record levels, creating opportunities for investors in refineries. 

David Osfield, manager of the EdenTree Sustainable Global Equity Fund is taking a more cautious stance on tech. “We have reduced our exposure in the EdenTree Sustainable Global Equity Fund to the technology sector, with the industry facing both energy-cost headwinds as well as Iran-induced supply chain disruption from key input materials. Our exposure to semiconductors in particular has been dialled back, reflecting our concerns that higher energy prices could delay or even cancel data-centre expansion plans – we have materially reduced our holdings in both Taiwan Semiconductor and Chroma ATE after holding both continuously since 2017” he shared.

In contrast, Edentree sees continued opportunity in renewable energy, particularly in companies building the infrastructure required to provide energy security. “Renewables are a fast, scalable and cost-effective response to the energy security challenges now intensifying across the world.”