Iran War May Boost Oil Demand in Long Term

The ongoing Iran war has dealt a severe blow to global oil demand, but paradoxically may lead to increased consumption in the long term.

According to Russell Hardy, CEO of Vitol, demand destruction due to the conflict is around 4 million barrels per day (bpd), or 4% of global consumption. This represents the largest monthly collapse in consumption since the depths of the COVID-19 pandemic in 2021.

The International Energy Agency (IEA) expects global oil demand to contract by 80,000 bpd in 2026, a dramatic reversal from its pre-war forecast for 730,000 bpd of growth. This decline reflects refiners scaling back operations or shutting units altogether to conserve fuel as supplies from the Middle East dry up.

However, the war may also lead to changes that push oil demand higher in the long term. The scramble by nations to shield themselves from energy shocks could drive governments to invest more heavily in domestic supply chains, lifting aggregate energy demand.