IEA Downgrades Oil Demand Growth Amid Iran War-Induced Supply Disruptions
The International Energy Agency (IEA) has drastically revised its oil market outlook due to the ongoing Iran war, predicting both global oil supply and demand will contract in 2026. The agency's monthly oil market report revealed that the conflict has led to the largest oil supply disruption in history, resulting in a significant drop in global output.
The IEA now forecasts an average decrease of 1.5 million barrels per day (bpd) in global production this year, down from its previous estimate of a 1.1 million bpd increase. This decline is largely due to strikes on Middle East energy infrastructure and the closure of the Strait of Hormuz, which has resulted in a loss of approximately 2.6 million bpd of supply.
The agency also predicts that global oil demand will fall by 80,000 bpd this year, reversing its previous forecast of a 640,000 bpd increase. The IEA warns that resuming flows through the Strait of Hormuz is critical to easing strains on energy supplies and prices, with regular deliveries of oil and gas from the Middle East expected to resume by mid-year.
The agency's base case forecast assumes that supply disruptions will be short-lived, but a more severe scenario suggests longer-term consequences, including the drawdown of almost 2 billion barrels of oil from stocks and a 5 million bpd drop in global demand. The IEA notes that its two cases 'span the range of probable outcomes' due to the ongoing geopolitical uncertainty.