Ed Ballard
If you read about the economic fallout from the Iran war, you'll encounter an ominous phrase: demand destruction.
With a vast amount of the world's oil and gas trapped inside the Strait of Hormuz and global inventories shrinking, one inevitable result is people consuming less. The longer the conflict lasts, the more attention will go to the painful question of who goes without.
But demand destruction is a slippery concept. Situations that get bundled together under this rubric include airlines cutting flights, Asian governments requiring home-working to save fuel, rising EV sales and high energy costs sapping overall economic activity.
Some effects are temporary; others could herald permanent shifts. To see how the shock is unfolding -- and what could come next -- it's helpful to know what we're talking about.
Start with a number: 420,000 barrels a day. That is how much the International Energy Agency expects global oil demand to decline this year, assuming Gulf energy flows resume next month. Prewar, the IEA expected daily demand to increase by 850,000 barrels.
The difference amounts to a little under 1% of global oil demand. More than half of the missing barrels would have been consumed by the petrochemicals sector. Plastics and chemicals makers in Asia need naphtha and other oil derivatives from the Middle East and shortages have led them to reduce output.
The IEA calls that demand destruction, but not everybody does.
"I would call it demand rationing," said Amin Nasser, chief executive of Saudi Arabia's state oil giant Aramco, on an earnings call last week. "We don't see any demand destruction," he added.
Jaime Brito, an oil-market expert at Dow Jones Energy, also favors a narrow definition.
"Demand destruction is when you are not going to see that demand coming back," he said.
That would exclude most of the demand destruction as defined by the IEA and many other analysts. Asian chemicals companies will most likely buy more naphtha when it becomes available. Airlines -- currently second in the demand-destruction stakes, the IEA says -- will buy more kerosene.
For purists, EVs are a textbook case of bona fide demand destruction. The gradual replacement of gasoline-powered cars with battery-powered ones was eroding oil demand by 1.7 million barrels a day in 2025, a figure likely to triple by 2030, the IEA says.
This distinction gets to the heart of the climate challenge. Keeping global temperatures in check entails permanently destroying fossil-fuel demand.
EVs as WMDs
There are some signs that this latest fossil-fuel price shock could hasten that kind of destruction -- most notably increases in EV sales in many markets as gasoline prices jumped. But Brito isn't among the many analysts predicting that this crisis will accelerate the decarbonization of the economy.
The problem is the higher upfront cost of demand-destroying green technologies, such as electric trucks that replace diesel engines and heat pumps that replace gas furnaces. Subsidies are often needed to close the gap. Even if governments see the logic of reducing exposure to oil-and-gas volatility, their budgets will be strained by this crisis.
The IEA, which is tracking governments' crisis responses, says 28 countries have increased energy subsidies; just 12 have introduced pro-electrification policies. Fossil fuels are expensive right now, but so is destroying demand for them.
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Today's email was written by Ed Ballard in London. Contact him at ed.ballard@wsj.com. Contact the team at climate@wsj.com.
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May 21, 2026 09:25 ET (13:25 GMT)
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