The war between the United States, Israel, and Iran has inflated the world's oil and gas import bill by as much as $330 billion over the six months from March to August, according to data from the Finland-based climate think tank Centre for Research on Energy and Clean Air (CREA). That is despite a smaller-than-feared climb in both oil and gas prices. The war, however, is not over yet, and the bill could grow further.

The CREA figures refer to money actually paid to import oil, fuels, and LNG compared with what analysts had forecast for the period. The organization called the Persian Gulf disruption the biggest such event since the 1990 Gulf War, with the European Union suffering the most financial pain. The scale of the shock reflects the region's centrality to global energy supply: the Strait of Hormuz, at the mouth of the Persian Gulf, normally carries roughly a fifth of the world's oil consumption, so any disruption there propagates through prices well beyond the countries immediately involved.

Crude oil accounted for the largest share of the total extra import bill, at $164.1 billion. Diesel and gasoil followed at $73.8 billion, with gasoline contributing $35.7 billion. Liquefied natural gas cost importers $38 billion more than it otherwise would have, and jet fuel added $20 billion in extra import costs.

According to the figures CREA released this week, the European Union's energy import bill surged by $78 billion over the March–August period versus analyst expectations. The reason lies in the EU's heavy dependence on imported oil and gas—notably U.S. crude and LNG—a result of its sanctions on Russian hydrocarbons and the absence of any meaningful domestic production of either commodity. In addition, the EU's largest local supplier of these energy commodities, Norway, has limits on how much it can export to the bloc.

China was next among the biggest sufferers from the war's impact on energy commodity prices, paying an extra $35 billion over the six months to August. China is the world's largest importer of both crude oil and LNG. After prices surged following the first U.S. and Israeli strikes on Iran, however, China sharply curtailed its imports. Many analysts argue that China, in effect, saved the world from an oil price crisis by reducing imports and drawing on its massive stockpiles, estimated at between 1 billion and 1.4 billion barrels at the start of the year. That episode underscored how strategic petroleum reserves, originally built to cushion supply shocks like the oil crises of the 1970s, remain one of the few tools importers can deploy quickly against a price surge.

India experienced the third-strongest financial impact of the war, paying an additional $22 billion for its energy imports over the period under review. This is unsurprising, as India is even more dependent on oil and gas imports than EU member states. India is especially reliant on oil imports, much of which it previously sourced from the Middle East, leaving it directly exposed to the export flow disruption caused by Iran's closure of the Strait of Hormuz in response to the U.S. and Israeli strikes.

Other Asian countries besides China and India also felt the pain from war-related price surges in crude oil, liquefied gas, and fuels, all paying extra billions for their hydrocarbons. CREA noted that the war and the associated price surge had crimped demand for fuel commodities, and that its extra import bill calculations reflected what importing nations and regions actually bought—not what they would have purchased had the war not begun at the end of February.

The pain is far from over. Over the six months to August, LNG prices in Asia averaged roughly 75% higher than analysts had expected for the pre-war period, while in Europe the price of liquefied gas ran 60% above pre-war expectations. Both prices are set to remain at current levels and could move even higher, as the EU faces potential gas shortages unless it starts buying now for the winter and Asian countries also need to stock up for the cold months. Seasonal restocking competition between European and Asian buyers is a recurring feature of the post-2022 LNG market, when Europe's shift away from Russian pipeline gas turned it into the world's largest LNG-importing region and intensified global competition for cargoes each winter.

Oil prices, meanwhile, remain considerably higher than pre-war levels, while fuels have risen the most and are set to stay far more expensive than they were before March. The International Energy Agency estimated earlier this year that as much as a fifth of Middle East refining capacity—some 9.6 million barrels daily—has been knocked out by hostilities. Combined with refinery damage in Russia from Ukrainian drone attacks, this has severely constrained global refining capacity and, by extension, fuel output. The fuel squeeze is expected to outlast the war whenever it ends, meaning higher energy bills for importers for longer, with knock-on effects for transport costs, freight, and aviation, where refined products account for a large share of operating expenses.

The one silver lining in this dark import-bill cloud, according to CREA, comes from wind and solar. These, along with other low-carbon energy sources, saved importers a total of $36 billion between March and August. It may not be much, but it is better than no savings at all—and for the EU in particular, which has been expanding renewables partly to reduce import dependence, the war has provided a concrete illustration of how domestic generation shields economies from imported-fuel price shocks.

By Irina Slav for Oilprice.com

Source: CREA | OilPrice.com