The Energy Supply Cliff is Alarmingly Near

Ahead of us is an energy supply cliff; that is when oil runs out. It does not just mean the oil price rises again, which is an inflation problem. It is when there is not enough oil. Oil is hard-wired to economic output. When oil is in short supply, output stops. It does not just get more expensive.

Time to the Energy Supply Cliff

Picture the difference like this. Right now, when you drive up to the pump, petrol or diesel costs more; that is how the market rations scarcity. What lies in wait is when you get to the pump, and it is empty. There is no oil to ration.

That has significance for both the economy and geopolitics.

The reasoning that follows is based on known quantities and simple extrapolations. It is not the fruit of vision but arithmetic.

The amount of oil missing from the Middle East (ME) is 12 million barrels per day (bpd). How is this arrived at? Total ME annual pre-war (Feb 28) output was 25 million bpd. The oft-quoted 20 million bpd figure only covers crude oil exports from the ME. It misses out on refined product, bunker fuel and other leakages. To get from ME 25 million gross output potential to the 12 million bpd daily supply deficit today, we adjust for ME crude that is still flowing, such as through pipeline (the Yanbu pipeline in Saudi Arabia and the Fujairah one in the United Arab Emirates) and add back new supply from elsewhere. Your author also incorporates a reduction in demand for oil of 2.5% of global consumption to allow for the effect of demand destruction due to existing higher prices. This all reduces the supply shortfall. So, this analysis will go with the 12 million bpd supply shortfall. This supply shortfall is reconcilable with the movement of oil inventories published by the IEA; it is not a figure drawn out of a mad hatter’s hat!

The next job is to apply that supply shortfall to inventories in order to see when they run out. More realistically, because no one uses ‘crude’, when do inventories reach a critical floor beyond which normal refinery output cannot be ensured?

This is an important concept that needs elucidation. The composition of reserves is as important as their quantity. Say two grades of oil – sour and sweet – are needed in equal quantities to produce a refined product. Then imagine the reserves are made up of 100 days of sour and 25 days of sweet! The floor of ‘usable reserves’ will be reached after 25 days. The remaining 75 days of crude are useless because they cannot be refined into products people need.

All that remains is for us to pleach our estimate of the supply deficit with inventories to produce an estimate of the Cliff date when supply runs out. To do this, I use the 12 million bpd supply shortfall as a gauge of the daily decline in inventories for which the floor is calculated using the concept of ‘usable reserves’. This is given in the second table. This shows that 9 of the major economies monitored will fall over the supply cliff by the end of summer. And 7 of them are perilously close to that level now or will be in July.

Basic Assumptions

How can this be wrong? There are only two critical assumptions to get to the cliff.

One is that demand for oil doesn’t fall by more than 2.5% before mid-summer. If it did, then the economic prophecy would be fulfilled anyway.

The second assumption is that the Gulf remains closed. If Gulf shipping is unblocked, there would be a sudden ‘flush’ of oil trapped in 75 VLCC tankers equal to about 7 days of normal Gulf production and 1.5 days of global consumption. Beyond that, all depends upon how many ships will navigate the gulf on a ‘normal’ post-war day (we need a two-way flow of the equivalent of 12 VLCCs a day and another 7 LNG tankers); and how quickly Gulf production can be brought back on stream for both oil and LNG. The likelihood is that there would be a partial cliff anyway, but expectations further out would be less dire.

Some of the geopolitical consequences of the cliff are obvious and simple (for example, do our militaries have enough fuel to fight?). Some are not.

You will note above that the movement of inventories is not treated as a source of ‘new’ supply but as a relocation of a stock to meet demand, which is then no longer there to do so in the future. Thus, the sale of a US inventory which is bought by the EU or Asia momentarily eases the supply constraint for those regions while diminishing the US’s ability to meet its own needs down the road. It does not change the global oil supply and demand balance. But it does influence the regional supply and demand balance.

Take the US. The US produces 13 million bpd & imports 2.25 million bpd (mainly of sweet to mix with its own sour). The US then consumes 16 million bpd, leaving a net daily deficit of about 1 million bpd. That is a high degree of energy autonomy. But then, the US ships 4.2 million bpd to the EU and Asia. This raises the daily depletion rate of reserves to 5.2 million bpd. So, the US will hit the cliff later than most in September 2026. The point is, the US will still hit the cliff as long as it keeps exporting its crude reserves to the EU and Asia.

The big geopolitical question is this: by the end of summer, the EU and Asia will be running out of oil. The US will be facing its own cliff. President Trump has sound reasons to send oil reserves to Japan for strategic reasons and to South Korea because it supplies the US with aircraft kerosene. But to the EU? If the US stops, the EU will be hit by a triple whammy: no oil, no LNG (where inventories are at 34% of where they should be) and no Nato credibility if the US is running down its hard asset commitments by then (as appears likely).

The potential for further disruption to trans-Atlantic relations and the creation of golden opportunities for Putin are hovering like dark drones above the energy Cliff.

© David Roche, 2026, published by RUSI with permission of the author.

The views expressed in this Commentary are the author's, and do not represent those of RUSI or any other institution.

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