Global Oil Oversupply to Offset Iran's Absence, Report Suggests

Iran's absence from the global oil market is likely to be offset by an existing oversupply in global oil inventories, providing a buffer against potential supply disruptions, according to a report by CareEdge. The report noted that the global oil market was already oversupplied with oil inventories amounting to 8.3 billion barrels in 2025, and this trend is expected to continue through 2026 and 2027.

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Oversupply Mitigates Market Disruptions

The surplus supply is expected to help balance the market even if geopolitical tensions disrupt some production or exports. It stated, "Iran's absence in the oil market, which produces 3.5 million b/d of crude oil, accounting for a sizeable 4 per cent of global oil supply in 2025, should be offset by oversupply."

Geopolitical Risks and Historical Price Volatility

The report also highlighted that geopolitical tensions historically lead to sharp spikes in oil prices. Over the years, events such as the 9/11 terrorist attack, the US-led invasion of Iraq, the Lebanon war, the Arab Spring and civil war in Libya, the Russia-Ukraine war, the Israel-Hamas war, and rising tensions in the Middle East have triggered sharp increases in the geopolitical risk index and oil price volatility.

Despite these geopolitical risks, the report suggested that the global oil market currently has enough supply to cushion the impact of disruptions. Data in the report shows that global oil production is expected to remain higher than global consumption in the coming years, indicating that the market will remain oversupplied. Projections show world oil production continuing to rise while consumption grows at a relatively slower pace, reinforcing the supply buffer.

Strait of Hormuz Remains a Critical Chokepoint

However, the report warned that the Strait of Hormuz remains a critical chokepoint for global energy supply. Around 20 million barrels per day of oil are transported through the Strait of Hormuz, making it one of the most important routes for global oil trade.

At the same time, the report highlighted that only 4.2 million barrels per day can be rerouted through existing spare pipeline capacities if the Strait of Hormuz faces disruptions. This implies that nearly 16 million barrels per day of oil flow could be at risk in the case of a full closure of the route.

Despite this vulnerability, the current oversupply in global oil inventories provides a cushion to the market. (ANI)