If a dire supply crunch does come to pass, a reduction in consumption could alleviate the worst of it, some experts believe
During the oil shock of 1979, sparked by a drop in oil production in the wake of the Iranian Revolution, a young Ger Hyland managed his father’s trucks and vans in the queue for diesel at a petrol station in Co Laois.
“Our local village had the biggest storage capacity for fuel in Leinster and I’d move the vehicles to keep them going in the queues,” says Hyland, who now owns Hyland Transport and is vice-president of the Irish Road Haulage Association (IRHA).
Younger generations may only be familiar with scenes of fuel rationing and panic-buying at petrol stations from watching Reeling in the Years. But some businesses and commentators are worried history is poised to repeat itself as global energy prices continue to escalate amid Russia’s war in Ukraine.
The Government has been privately war-gaming contingency measures to deal with any fuel shortages, and EU leaders have moved to ban seaborne Russian oil imports to phase out almost 90pc of imports into the bloc by year-end.
On Monday, the Irish Independent reported details of a confidential oil emergency exercise held by the Government and state agencies such as the National Oil Reserves Agency (NORA), which is tasked with maintaining 90 days of oil stocks in case of an emergency to run the economy.
During the exercise, the groups ran through three scenarios. Under the first scenario, of a diesel shortfall of 20pc by September 1, which could cause many fuel stations to run dry, NORA would release limited amounts of its reserve stock.
In the second scenario, with fuel stocks 35pc below demand for the eight weeks leading up to December 19, the Oil Emergency Allocation Scheme would be introduced to prioritise fuel to essential services and critical workers, with other motorists being told to limit their driving.
In this case, consumers would be separated into four categories: tier one would comprise essential workers, such as farmers and food producers, while motorists making non-essential journeys would be categorised as tier four.
The only petrol stations stocked with fuel would be the approximately 100 service stations designated as critical.
The third and most extreme scenario, proposed for February 2023, is where gas and oil supplies cannot meet the demand for electricity generation or for farmers preparing to cut silage.
There have long been signs that wartime fuel rationing as a result of the war could be on the cards. The International Energy Agency (IEA), founded after the 1973 oil crisis, said at the end of last month that Europe could face fuel shortages this summer and warned leaders to create backup plans in case harsh winter weather forced them to ration natural gas.
Kadri Simson, the European energy commissioner, has said that the bloc is developing plans in case Russian President Vladimir Putin suddenly cuts off gas imports entirely. John McCarthy, the chief economist at the Department of Finance, said in April that the war could force Ireland to start rationing fuel in an extreme scenario.
The same month, Central Bank director of economics and statistics Mark Cassidy said energy rationing could not be “ruled out” if the war causes gas shortages.
Kevin McPartlan, chief executive of Fuels for Ireland, which represents companies that import, distribute and market petroleum products and regularly works with NORA and government departments to monitor oil stocks, says the scenarios presented at the Government exercise at the end of May “were very stark and they are not anything we expect to happen, but they are within the realms of possibility”.
Neil McDonnell, chief executive of the small business body ISME, says: “We are conscious that if you have a deliveries or logistics business and you couldn’t access fuel, then you are effectively shutting down the business.
“The Government would have to provide direct supports to businesses, as it did during the pandemic. If we have to constrain the private use of cars, businesses along the Wild Atlantic Way and all those businesses starved of tourist footfall for two years, they would suffer again. A lot of businesses would view this as [another] lockdown”.
Despite the EU’s efforts to wean itself off Russian oil, the price of crude oil has continued to rise, with Brent crude oil hitting more than $124 (€116) a barrel during London trading on Thursday.
Last week, the head of commodity trader Trafigura warned that the oil market could reach a “parabolic state” this year, with prices surging to record highs and leading to an economic slowdown.
Chief executive Jeremy Weir told an FT conference that it was highly probable that oil prices could rise to at least $150 a barrel in the coming months, with supply chains strained as Russia tries to redirect its oil exports away from Europe.
Meanwhile, JPMorgan CEO Jamie Dimon has predicted prices could reach $150 or $175 a barrel this year, and Goldman Sachs analysts are forecasting an oil price average of more than $140 a barrel in the third quarter, when the US summer driving season is at its peak.
Environment Minister Eamon Ryan pointed out before the embargo was announced that while Ireland has no direct exposure to Russian gas and oil, the country is fully exposed to the global price hike that would ensue if an oil embargo was implemented.
One attendee at the Government’s emergency planning exercise, who spoke on condition of anonymity, said that rather than a shortage of fuel, the immediate fear is that President Putin would suddenly stop oil and gas exports to Europe in retaliation for sanctions and prompt panic-buying.
“You saw that happen in the UK last year, and that was not because of a massive problem with stock.”
Lisa Ryan, a professor of energy economics at University College Dublin who has also worked on energy security at the IEA, says: “What generally happens is that as soon as a rumour goes out about a shortage of a product, like toilet paper at the start of the pandemic, people rush out and try to buy more. That is a worry. But normally that rush lasts for a day or so and then it’s restocked again so it’s not likely we’ll run out of fuel.
“The third scenario in the plan, where we don’t have enough oil or gas to meet demand for electricity generation, is very hard to imagine, especially for gas. I would be concerned about gas supply coming into winter and the fact that outside urban centres people in poor quality homes use oil for central heating and their bills will be very high.”
McDonnell says many small businesses could adapt to wartime emergency measures to tackle any fuel shortages, such as a return to working from home, because limitations on travel and other pandemic restrictions, as well as the challenges posed by Brexit, have given them a template to deal with crises.
“They will have to accommodate challenges in the way they did over the last two years,” he says. “However, we’ve seen several thousand small businesses close down voluntarily this year and we are expecting several thousand more because they’ve taken two years’ worth of restricted trade so something like this is not going to help.”
While most Irish businesses are struggling with soaring energy prices and inflation, with the Central Statistics Office reporting on Thursday that annual consumer prices hit a 38-year high of 7.8pc in May, energy-intensive sectors would be most at risk if fuel shortages came to pass.
While Ireland doesn’t have the kind of heavy industry that dominates economies like Germany’s, sectors such as agriculture, food and goods transport, and construction depend on imported diesel.
Ryan says: “Most of our energy-intensive industry is in the transport of foods for the supply chain and [fuel shortages] would manifest mostly in costs going up.
"The cement industry is very energy intensive so it would probably have to receive an [energy] allowance.
“There is a large industry energy network run by the SEAI that meets on energy-saving initiatives so things like that would go into overdrive.
"The problem for small businesses is that they don’t have the manpower to better manage their energy but they do need to do that anyway and there are supports out there from SEAI to do an energy audit.”
Hyland, who is paying twice as much for diesel for his 20 trucks as he was a year ago, says hauliers who haven’t secured fuel surcharges from customers are already going out of business every week because they cannot afford diesel – despite a short-term subsidy of €100 per truck a week.
The IRHA says the Government has informed it there is a contingency plan in place in case of fuel shortages but told the association that details of the oil allocation scheme are “a closely guarded secret”, Hyland says.
“We were told we will be given priority and we will be given supply, but not told whether it would be 100pc or 80pc or 60pc of our normal purchase,” he says.
Ryan says that as Russian oil leaves the European market, “other countries in Europe will be looking for the same oil we get and there will likely be a decision at European level on allocation of resources.
"But whether it’s rationed or the price keeps going higher, there isn’t that much difference because people won’t be able to afford it. Prices will lead us all to cut our consumption, which will alleviate the supply crunch anyway.”