There is a better way. Instead of allowing market panic to dictate distribution and pricing, policymakers should pursue multilateral coordination to defend a price ceiling in global oil markets and allocate scarce resources in a way that meets people’s essential needs and minimises the economic fallout. Put simply, the world needs an oil buyers’ club.
The US blockade of maritime traffic entering and leaving Iranian ports in the Strait of Hormuz — a critical waterway through which Iran had previously prevented most ships from passing — is intensifying the global energy crisis. If Iran’s seaborne exports are interdicted, along with the energy exports of the Gulf countries, nearly 25% of total traded crude oil will be missing from global markets. Net oil-importing countries will be hit the hardest. Already, countries in Asia and Africa are facing energy shortages, which will only worsen.
In such a crisis, allowing market prices to determine how oil is rationed amounts to submitting to the law of the jungle. High-income countries outbid low-income countries, enabling the wealthy to maintain their energy use, while the poor are priced out. This was a key lesson of the Covid-19 pandemic (in the allocation of critical medical supplies) and the 2022 energy crisis: in times of crisis, market allocation leads to grossly unjust outcomes. The extremely volatile prices we have witnessed in recent weeks are not rational arbiters of supply but rather an expression of animal spirits reacting to the latest social media posts by US President Donald Trump and speculation about the future course of the war.
