The world risks becoming ever more reliant on Middle Eastern oil as lower prices derail efforts by governments to curb demand, the west’s leading energy body has warned.
The head of the International Energy Agency told the Financial Times that Middle Eastern producers, such as Saudi Arabia and Iraq, now have the biggest share of world oil markets since the Arab fuel embargo of the 1970s.
Demand for their crude has surged amid a collapse in oil prices over the past two years that has cut output from higher-cost producers such as the US, Canada and Brazil.
Fatih Birol, IEA executive director, said policymakers risk becoming complacent as rhetoric surrounding a rise in North American energy supplies has overshadowed the world’s growing reliance on Middle Eastern crude.
“The Middle East is the first source of imports,” said Mr Birol. “The higher the demand growth the more we [consumer countries] will need to import.”
Middle Eastern producers now make up 34 per cent of global output, pumping 31m barrels a day, according to IEA data. This is the highest proportion since 1975 when it hit 36 per cent. In 1985, when North Sea production accelerated, their share fell to as little as 19 per cent.
Fast-growing supplies from US shale fields triggered the oil price plunge in mid-2014. Unlike in the 1980s, however, Opec producers — led by Saudi Arabia and its Gulf allies — decided to maintain output to defend market share for the 13-member group, rather than cutting output to bolster prices.
Demand has since surged as prices more than halved following years of trading above $100 a barrel. Mr Birol said efforts to improve energy efficiency and reduce emissions were being thwarted as motorists returned to buying fuel-guzzling cars.
Lower oil prices are proving to be bad news for efficiency improvements
In the US, more than two-and-a-half times as many sports utility vehicles were being bought compared with standard cars, Mr Birol said.
Even more concerning for policymakers is China, where more than four times as many SUVs were bought, suggesting the country’s rapidly growing car culture has adopted America’s taste for larger more fuel-hungry cars.
“Lower oil prices are proving to be bad news for efficiency improvements,” said Mr Birol.
China has been the centre of oil demand growth for the past decade, becoming the second-largest oil consumer — behind the US — and surpassing it as the world’s biggest importer last year.
Hundreds of billions of dollars in energy investments have been cut since 2014 as oil companies have embarked on the biggest cost-saving measures in 30 years, Mr Birol said. That is cutting supplies outside Opec, with US and other countries’ production expected to decline this year.
Higher output from Iraq, Saudi Arabia and Iran has filled the gap.
“The Middle East is reminding us that they are the largest source of low-cost oil,” said Mr Birol. He said the region was expected to meet three-quarters of demand growth over the next two decades.
Higher US output had prompted some lawmakers to suggest the country can reduce its engagement in the Middle East. But Mr Birol warned politicians to keep in mind the importance of the region when creating economic and foreign policy. US oil imports are rising for the first time in year as demand has grown faster than supplies.
Mr Birol said policymakers needed to impose stricter fuel efficiency targets to reduce demand, arguing it was not feasible in a world market to completely sever reliance on Middle Eastern oil.
“US oil production will increase, but it is still an oil importer and will be for some time,” Mr Birol said.
“Some have the view the rise of tight [shale] oil will sideline the Middle East. This view, I would never subscribe to.”
