Lower speed limits, remote work could combat global oil shock: IEA

The International Energy Agency has set out a suite of policy options to cut fuel use, including work-from-home directives and reduced speed limits, to respond to what it has called an unprecedented supply shock in the global oil market.

In a special report published March 20, the Paris-based IEA set out 10 demand-side controls that can be used to curb oil consumption, including encouraging remote work, diverting LPG from the transport segment and cutting speed limits by at least 10 km/h.

Established in the aftermath of the Arab oil embargo in 1973, the IEA has a mandate to advise its member states on energy policy. It has already announced a record 400-million-barrel stock release from its member states’ reserves to respond to suspended shipping through the Strait of Hormuz, which it has called the largest oil supply shock in world history.

Nevertheless, prices continued to rally, and governments have increasingly looked to demand-side levers to help soften the blow of the crisis.

According to IEA analysis, over 40 countries have already announced plans to offer targeted consumer support to protect fuel affordability, through measures such as price caps, reduced fuel duties or targeted subsidies.

The UK, for example, announced GBP53 million of funding for heating oil consumers, while countries such as Turkey, Austria, Portugal and Hungary have cut fuel taxes. However, the IEA warned that fiscal measures can be challenging to phase out, and often come at a high cost.

In response to the price shock of the Russia-Ukraine war, the IEA estimates that countries spent $900 billion subsidizing energy through direct grants, vouchers, tax reductions and price regulations between 2022 and April 2023.

As an alternative, good policy design should focus on road transport consumption, which accounts for roughly 45% of oil consumption globally, the IEA said.

Three additional remote workdays can cut cars’ oil consumption by up to 6%, the report estimates, adding that shifting travel to public transport could deliver an additional 3% in fuel savings.

Reducing highway speed restrictions by 10 km/h can cut individual drivers’ fuel use by up to 10%, while heavy freight trucks can trim consumption by around 5%, the IEA said. Additionally, policymakers can restrict cars’ access to designated zones to reduce congestion and "stop-and-go" driving.

In the LPG segment, another product highly exposed to the crisis, petrochemicals producers can use naphtha, ethane or gasoil as a substitute feedstock, and households can opt for alternative cooking solutions. For the 2% of the global car fleet running on the liquefied gas product, gasoline can offer a sensible substitute, the report said.