IEA Warns Oil Refining System at Breaking Point Amid Iran, Ukraine Conflicts

The International Energy Agency (IEA) has warned that the global oil refining system is 'stretched to the limit' due to the ongoing conflicts in Iran and Ukraine. The agency cut its global supply and demand forecasts for the remainder of the year, citing a deferred full recovery in flows from Middle East producers until next year.

The IEA expects world oil supply to decline by 5.7 million barrels per day (bpd) in 2026, about 6% lower than 2025. This is down from its previous forecast of a 4% annual drop. Global oil demand is also seen falling more than expected, with a 2.5 million bpd decline this year, significantly higher than the agency's August forecast of a 1.6 million bpd drop.

According to the IEA, inventories have played a crucial role in balancing the market so far, but 'buffers shrinking and the global refining system stretched to the limit' necessitate progress in resolving the conflicts in the Middle East and Ukraine. The agency notes that oil prices have surged due to the ongoing tensions, with both major benchmarks potentially ending the week above $100 per barrel for the first time since mid-May.