Lower speed limits, occasional restrictions on car access to city centres and cheaper or free public transportation would quickly cut millions of barrels of daily oil demand, helping avoid a looming supply crunch as the world heads into peak consumption season, according to an international energy watchdog.
Taking such steps would also reduce the pain at gas pumps around the world, lessen the economic damage wrought by Russia’s war in Ukraine, shrink Moscow’s hydrocarbon revenues and help move demand for crude toward more sustainable alternatives, the Paris-based International Energy Agency (IEA) said Friday.
The IEA’s recommendations, part of a push to curtail reliance on Russian oil, come as the West continues to squeeze Moscow’s economy with a series of increasingly strict sanctions. The IEA warned earlier this week that those sanctions and a general reluctance to purchase Russian crude and refined products could wipe three million barrels a day from global supplies. And that, it said, could further raise oil prices, drive up inflation and undercut the global economic recovery.
To help ease supply strain and keep prices in check, the IEA recommends that advanced economies take 10 specific, immediate steps – mainly centred on transportation – that it says would lower oil demand by 2.7 million barrels a day within four months. That’s equivalent to the demand of all the cars in China.
The steps include lowering highway speed limits by 10 kilometres an hour, encouraging more working from home, placing occasional limits on car access to city centres, making public transportation cheaper or even free, and promoting greater use of high-speed rail and virtual meetings instead of air travel.
IEA member countries, including Canada, have already agreed to release millions of barrels of emergency stocks of crude to support the global economy, “but we can also take action on demand to avoid the risk of a crippling oil crunch,” IEA executive director Fatih Birol told media Friday.
The global energy response to Russia’s aggression in Ukraine must be bold and nimble but also cool-headed, he said, to ease the “growing emergency in the oil and energy markets.”
As such, he will push energy ministers from various countries who will be attending an IEA meeting next week to adopt the 10-point plan.
Dr. Birol said the measures have been used successfully in various jurisdictions around the world in the past to cut pollution or absorb price shocks. Car-free Sundays were introduced in countries such as Switzerland, the Netherlands and West Germany during the 1973 oil crisis, for example. The following year, U.S. president Richard Nixon signed a law lowering national highway speed limits to 55 miles per hour in a bid to reduce fuel consumption and curb his country’s dependence on foreign oil.
While the 10 steps would be “extremely effective” in reducing global reliance on Russian fuels, their real power would come from their use in the broader package of sanctions against Moscow, said Barbara Pompili, the Minister for the Ecological Transition of France, which currently holds the presidency of the European Union.
Canada, the U.S. and Australia have banned Russian oil imports, and Britain says it will phase out crude from Russia by the end of the year. But the European Union, which relies on Russia for the bulk of its oil and natural gas, has made no such sweeping move – though Germany did stop the certification process for the Nord Stream 2 pipeline, which would have sent even more Russian gas its way.
Russia has already reduced its natural gas flows to Western Europe, according to a research note from data firm Rystad Energy this week. Senior analyst Kaushal Ramesh noted that Moscow’s exports to the region could potentially “decline in the coming months as more companies ramp up self-imposed sanctions.”
Indeed, oil and gas prices remain jumpy, following a roller coaster-like trajectory over the past few weeks. Earlier this month they hit multiyear highs, with oil spiking to US$130 a barrel as markets grappled with the continuing war and wondered what steps the EU and Russia would take next.
On Tuesday, oil prices tumbled more than 6 per cent to their lowest in almost three weeks as supply disruption fears eased and a surge in COVID-19 cases in China threatened to curtail demand. West Texas Intermediate crude, the North American benchmark, fell US$6.57 to settle at US$96.44 a barrel.
The commodity lost ground again Wednesday for the fifth time in the past six days as traders reacted to apparent progress in Russia-Ukraine peace talks and an unexpected increase in U.S. inventories. On Friday morning, WTI hovered around US$104 a barrel.
With OPEC+ due to meet March 31, Dr. Birol said he hopes the group will help relieve the strain in oil markets.
“Many of the key oil-producing countries in the past have again and again ruled that they are responsible players in the energy markets when it comes to such difficult cases,” he said. “I very much hope that once again they will be on the right side here.”
With a report from Reuters
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.