An age of energy fragility

Oil and gas remain available despite significant capacity unavailability and shipping disruptions. Prices have often stayed within the upper end of tolerance. That resilience, however, should not be mistaken for stability. The better description of the essence of today’s energy system is fragility. Markets are functioning, but with diminishing buffers and tighter product inventories, in turn widening regional divides and increasing dependence on political choices.

The fears have thus far not come true, but accumulating vulnerabilities could amplify the impact of future disruptions. We could also be looking at the wrong indicators. Crude oil matters, but refined products matter more. Diesel and jet fuel inventories have remained tight across major markets, with stock levels below historical averages after sustained draws. When diesel prices rise, the effect travels quickly into freight, logistics, agriculture, and ultimately consumer prices.

When jet fuel tightens, aviation feels the impact. A market can appear adequately supplied in crude while the products that keep economies moving become scarce and expensive. Natural gas presents an even sharper warning, particularly for Europe but also for countries like India. Storage levels have improved at points, reducing immediate anxiety, but they remain below seasonal norms while Gulf supply and major shipping routes remain exposed.

Natural gas markets have also fragmented and diverged significantly. American gas prices remain relatively insulated, while Europe and Asia carry a much higher energy risk burden. It can reshape industrial competitiveness, investment decisions, and political choices. It can also reshape climate agenda, fragmenting climate response and destroying the ethos of shared responsibilities. Indeed, the upcoming CoP 31 in Türkiye would be a good forum to assess how far the priorities have diverged.

The geography of power in oil has also changed and this could tilt even further. Pricing power has moved from producers to major consuming nations with scale, storage, and purchasing flexibility to influence demand. In many ways, the Organization of the Petroleum Exporting Countries no longer controls the market; China does. China has used inventories and buying patterns to cushion shocks and keep prices within a tolerable range.

In many ways, this has prevented a wider global economic crisis from widespread disruption and demand destruction. India is better placed than a decade ago in terms of refining capability and infrastructure, but still needs substantially more storage if it wants greater leverage and security. Reserves have reduced vulnerability, but they are not inexhaustible. Once buffers diminish, the same geopolitical event can produce a much larger market reaction.

That is why energy security cannot be judged only by production or headline prices. It must also be judged by inventories, refining capacity, shipping access, fuel substitution, and the political willingness to share pain. Markets sometimes respond positively to sanctions or economic coercion because they reduce the immediate probability of military action and physical disruption. Prices can fall even as underlying tensions rise.

This is a reminder that markets price the next shock, not the accumulated vulnerability, which could ultimately lead to significant demand destruction. The International Energy Agency estimates that in 2026, oil supply will fall by about 6%. In a situation where overall energy supply is growing, that is a massive shift. For energy companies, traditional playbooks are fading. Disruptions to normal operating principles are now the norm.

Managing quarter to quarter is no longer enough. The industry has to play the long game through greater value chain integration, diversified supply, stronger inventories, and faster responses to shifts in consumption and consumer preference. It must also resist the temptation to abandon the energy transition whenever security concerns intensify. Security, affordability, and transition are increasingly same agendas if one is open to looking beyond quarterly financial performance and seek long-term relevance.

Governments also face a difficult balance. As prices rise, political intervention becomes nearly inevitable to shield citizens from the worst effects. Even the US, the torchbearer of the free market economy, has come remarkably close to imposing diesel export bans before taking such measures off the table. However, such measures come at a cost. Export restrictions, price controls, subsidies, and emergency stock releases may offer relief, but they can also transfer scarcity across borders and weaken investment signals.

The coming winter therefore demands a close watch and agile action. The greatest danger is not one event, but the interaction of several stubborn challenges: geopolitics, depleted buffers, constrained refining, vulnerable shipping routes, inflation, high interest rates, cyber risk, and climate stress. The global energy system has proved resilient. But resilience without replenishment eventually becomes exhaustion.

In all this is a complex situation from which some key lessons need to be drawn. Under the relative calm on the surface, this a shear zone. There are severe currents underneath. Geopolitics has not stabilised—for the moment, it has simply fragmented without firm resolution. The energy system reflects those currents and conflicts, which makes it extremely fragile. While the Hormuz conflict has not turned into a full-blown crisis as was feared, it has been a wake-up call for nations to secure their own energy futures and work towards greater innate resiliency and sustainability of their energy systems.