- The International Energy Agency (IEA) said the Iran war has created the biggest oil‑supply shock on record, with 10.1 million barrels per day of supply lost in March. The agency now expects global supply to fall by 1.5 million bpd this year instead of rising, reversing previous forecasts.
- The IEA forecast that oil demand growth will contract by 80,000 bpd in 2026, flipping a previously expected rise of 640,000 bpd. It warned that resuming flows through the Strait of Hormuz is the single most important variable for easing pressure on prices and the global economy.
- The IEA’s base case sees oil and gas flows resuming by mid‑year but remaining below pre‑war levels. A severe scenario envisions prolonged disruption that could require drawing almost 2 billion barrels from strategic stocks and cutting demand by 5 million bpd.
The International Energy Agency has dramatically downgraded its oil market outlook, warning that the Iran war has caused the largest supply disruption in history and is likely to drive both supply and demand lower this year.
In its latest monthly report, the Paris‑based agency said strikes on Middle East energy assets and the effective closure of the Strait of Hormuz have removed more than 10 million barrels per day of crude and oil products from the market. That loss, which could deepen by a further 2.9 million bpd in April, reverses expectations of a sizeable surplus in 2026 and signals a fundamental reset for global energy flows.
The IEA now expects global oil supply to fall by around 1.5 million bpd this year, compared with a prior forecast of a 1.1 million‑bpd increase. Demand growth is forecast to shrink by 80,000 bpd, down sharply from the 640,000 bpd rise predicted in March.
The agency describes this as “demand destruction” and notes that the deepest cuts are occurring in the Middle East and Asia‑Pacific, particularly for petrochemical feedstocks and jet fuel. It attributes the reversal not only to high prices but also to rationing and conservation efforts by governments and consumers.
While the agency still sees a small annual surplus – supply is expected to exceed demand by roughly 410,000 bpd in 2026 – it warns that the margin is razor‑thin. Its base case assumes that regular deliveries through the Strait of Hormuz resume by mid‑year. However, the report outlines a severe scenario in which flows remain disrupted.
Under that outlook, nearly 2 billion barrels could be drawn from strategic reserves and demand would need to fall by an average 5 million bpd from the second to the fourth quarter. Such a drawdown would dwarf the coordinated releases seen after Russia’s invasion of Ukraine.
The IEA emphasises that resuming transit through the strait remains the “single most important variable” for easing pressure on supplies, prices and the global economy. Even if flows resume, the agency notes that some Gulf infrastructure has been damaged and may take years to restore, keeping LNG markets tight into the next decade.
The report underscores the urgency of diversifying energy sources and boosting resilience. The IEA’s stark assessment signals that oil and gas prices could stay elevated and volatile for months, complicating hedging strategies and reinforcing the economic case for electrification and energy efficiency.
Policymakers must balance short‑term relief measures – such as strategic stock releases – with long‑term investments in renewables, storage and demand‑side management.
