The Petroleum System Is Entering Its Volatile Decline Phase

The global petroleum system is entering a phase of heightened volatility and structural decline, driven by shifting market dynamics and geopolitical tensions. The UAE’s recent departure from OPEC+ exemplifies a broader trend where producers with low extraction costs and ambitions for spare capacity are prioritising flexibility over cartel discipline. Meanwhile, long-term demand for oil is weakening under pressure from electric vehicles, improved efficiency, changing work patterns, and alternative logistics, challenging the traditional growth model that has underpinned the oil industry for decades. Historically, the oil market has been characterised by recurring shocks rather than steady supply and demand equilibrium. Since the 1970s, a series of crises—including the Arab oil embargo, the Iranian Revolution, Gulf Wars, and more recent disruptions such as the 2020 COVID crash and Russia’s invasion of Ukraine—have repeatedly demonstrated the sector’s vulnerability to geopolitical, economic, and environmental factors. These events have not only caused price spikes or collapses but have also revealed the deep interconnection between oil markets and global political stability, inflation, and trade balances. The current crisis centred on the Strait of Hormuz is particularly significant, with the International Energy Agency (IEA) describing it as the most severe oil supply shock in history. The chokepoint typically handles around 20 million barrels per day, roughly one-fifth of global consumption, and disruptions here have led to unprecedented price surges, with North Sea crude reaching around $130 per barrel. This situation echoes the 1970s embargo in highlighting the fragility of global oil supply chains, which remain heavily dependent on narrow maritime routes and politically unstable regions, even as the energy transition accelerates. The implications of this volatile decline phase are profound for both producers and consumers. The institutions and fiscal frameworks built around oil’s historical growth are increasingly misaligned with the realities of a shrinking market, leading to shifting incentives and potential instability. As electrification and alternative energy sources reduce demand, the petroleum sector may face more frequent and unpredictable shocks, challenging policymakers and industry stakeholders to adapt to a fundamentally transformed energy landscape.