By Anders Lorenzen

In our first installment of the The Oil Crunch, a new series from A greener life, a greener world, we look at the increased oil price volatility. In the series we focus on the increasingly volatile oil industry. We will investigate and analyse whether oil prices will actually ever recover from the current instability.

It will investigate geopolitical tensions such as the war in the Middle East, the trade war between the US and Canada, whether we can expect a quick resolution and in return how this will impact oil production and demand.

The series will also investigate whether the clean energy revolution and clean energy technologies taking advantage of the high oil price, means that changes in oil production and oil demand are permanent rather than temporary forces. 

For the first time since May, the price of oil has again surged past $100, after it had stabilised around $80 after peace negotiations between the US and Iranian governments. 

But since then, the prospect of peace has been unstable at best, ranging from collapsing, being picked up, then collapsing, to mediators trying to bridge the impasse. 

What’s causing the sudden oil price surge?

Two key events can be attributed to the renewed surge in the volatile oil price. The rice comes as the key oil trading route, the Strait of Hormuz continue to be. disrupted. Another key contributing reason is that Saudi Arabia was last week forced to shut down its main oil trade alternative. They closed the 1,200 km long East-West pipeline, as a direct response to it coming under attack from the Iranian-backed militant group, the Houthi rebels.

Oil futures surged in early trading first on Asian markets, then European markets. The price of Brent Crude and West Texas Intermediate (WTI), the key global oil benchmarks, surged to well above $100. It rose to $108 and $103 per barrel p/b respectively.

Oil trade disruptions

The disruption to oil trade in the Middle East has prompted a series of warnings from the world’s most authoritative energy analysts, the International Energy Agency (IEA). 

They warned that 4% of global oil is threatened by the tensions in the Middle East.

The Paris-based agency said that in August, global oil production fell by 1.6 million barrels per day (mb/d) to 100.1 mb/d in August, as more than 10 mb/d of Gulf output remained shut in amid heightened security risks.

In total, oil supply is set to fall by 5.7 mb/d to 100.7 mb/d this year, with the expected recovery in the Gulf now deferred until 2027.

Declining oil reserves

The IEA also warned of rapidly declining stored oil reserves. Global observed oil inventories plunged by a further 95 million barrels (mb) in August, taking cumulative draws since February to 507 m/b. Oil on water volumes declined by 65 mb as tanker traffic out of the Middle East came under renewed attacks.

Saudi Arabia is the world’s third-largest oil producer behind the US and Russia, and Iran has dropped from seventh to fifth due to the Middle East tensions and disruptions. 

The conundrum of a high oil price

The conundrum of a high oil price is that it increases the price of petrol, other transport fuels areas such as flying and products produced with oil directly, such as plastics. Furthermore it indirectly increase food prices, due to the majority of agricultural chemicals are produced using crude oil. On top of this the price of most other products, at least due to transport costs is influenced by oil futures. Therefore a higher oil price could in return lead to energy conservation, lowering crude oil demand. 

However, on the other hand, it also gives oil companies more profit p/b produced, which means they can deploy more capital to explore for and extract even more oil. If a high oil price significantly cuts back demand, oil companies can reverse this by flooding the market and creating oversupply. This was actually an issue during 2025, as there were negotiations between OPEC countries such as Saudi Arabia and Iran and non-OPEC countries such as the US to lower production, as it was deemed that the oil price was getting too low, eroding profit gains for many countries and companies. 

The issue is that increasing oil production is not a solution to the challenges in 2026, as the issue is not production but transporting the crude oil to either where it is being refined or as finished products such as petrol, diesel, jet fuel, and chemical products.

In the next instalment of the Oil Crunch, we will look at whether Saudi Arabia secretly believes that the future belongs to clean energy and what they’re doing behind the scenes.

Anders Lorenzen is the founding Editor of A greener life, a greener world.