Iran War May Bring Higher Oil Demand in Long Term

The Iran war has had a devastating impact on global oil demand, but in the long term, it may lead to an increase in consumption. The Strait of Hormuz remains closed, causing a 13 million barrel per day reduction in global crude supplies since February 28.

According to Russell Hardy, CEO of Vitol, oil demand has been curtailed by around 4 million barrels per day, or 4% of global consumption. This is 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 barrels per day in 2026, a dramatic reversal from its pre-war forecast for 730,000 barrels per day of growth. This reflects refiners scaling back operations or shutting units altogether due to the scarcity of Middle Eastern supplies.

However, the war may also lead to changes that push oil demand higher. Governments are investing in domestic supply chains, including local oil and gas production, refining capacity, and storage. This could lift aggregate energy demand worldwide.