The world is in the middle of the 'first truly global energy crisis' and needs Russian oil to flow into the market, IEA chief says

• The OPEC+ oil output cut is fueling the "first truly global energy crisis", the head of the IEA said.
• He warned the Russia and Saudi-driven move cut 2 million barrels a day raises the risk of recession.

Russian oil will need to flow back into the crude market to solve an unprecedented world energy crisis, the head of the International Energy Agency said Tuesday.

Fatih Birol warned that recent supply cuts have fueled "the first truly global energy crisis", according to comments aggregated by Reuters.

OPEC+ — a group of oil-producing countries, including Russia and Saudi Arabia — agreed earlier in October to slash crude output by 2 million barrels a day from November. The aim is to build up surpluses for next year and maintain high prices.

That policy increases the risk of a global recession, with oil demand set to outpace supply next year, Birol reportedly said at the Singapore Energy Week conference.

OPEC+ production cuts are "especially risky, as several economies around the world are on the brink of a recession," the IEA's executive director said.

"I found this decision really unfortunate," he added.

The OPEC+ supply cuts are expected to drive gains in oil prices, which have fallen about 10% in the past three months after soaring immediately after the Ukraine war broke out. Brent crude was 1.2% lower at $90.28 a barrel at last check Tuesday, while WTI crude fell 1.3% to $83.46 a barrel.

A rally in crude oil prices would likely cause inflation to rise and both industrial production and growth to fall. The IEA has warned that could tip the global economy into a recession.

"With unrelenting inflationary pressures and interest rate hikes taking their toll, higher oil prices may prove the tipping point for a global economy already on the brink of recession," the agency said in its most recent monthly oil report.

IEA projections show global oil consumption growing by 1.7 million barrels a day in 2023. Russian crude will be needed to bridge the gap between demand and supply, Birol said.

The US and the European Union decided to place limited bans on Russian oil imports after President Vladimir Putin's forces invaded Ukraine in late February.

But the G7 countries — Canada, France, Germany, Italy, Japan, the UK and the US — have proposed backing up the bans with a price cap on Russian supplies. That would limit Moscow's potential profits from oil exports without fully shutting off deliveries.

It's been estimated that these measures would leave space for between 80 and 90% of Russian oil to flow outside of the cap mechanism, which Birol said would help to make up likely supply shortfalls.

"I think this is good, because the world still needs Russian oil to flow into the market for now," he said.

Between 80 and 90% of Russian oil flowing outside the price cap is a "good and encouraging level in order to meet the demand," he added.

IEA members have also built up a stockpile of additional oil reserves that can be released onto the market if there's a need to boost supply and drive prices lower, Birol said, per Bloomberg.

"We still have a huge amount of stocks to be released in case we see supply disruptions," he said. "Currently, it is not on the agenda, but it can come anytime."

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