The International Energy Agency has sharply downgraded its oil supply and demand projections, warning that both are now set to decline from 2025 levels as the Middle East conflict disrupts energy flows and pressures the global economy.
The agency now expects global oil demand to contract by 80,000 barrels per day in 2026, a significant reversal from the previously forecast increase of 640,000 bpd. It also highlighted a projected drop of 1.5 million bpd in the second quarter, which would mark the steepest decline in consumption since the COVID-19 pandemic.
“Demand destruction will spread as scarcity and higher prices persist,” the agency said, adding that the most pronounced declines so far have been in the Middle East and Asia-Pacific regions, particularly across naphtha, LPG, and jet fuel.
On the supply side, the Paris-based watchdog now forecasts a 1.5 million bpd decline in global output this year, compared with a previously expected increase of 1.1 million bpd just a month ago. Global oil production fell to 97 million bpd in March, with OPEC+ output dropping by 9.4 million bpd month-on-month to 42.4 million bpd.
The IEA linked the disruption to attacks on energy infrastructure across the region and Iran’s effective closure of the Strait of Hormuz, which it described as the largest oil supply shock on record, with 10.1 million bpd lost in March.
Flows through the Strait dropped to around 3.8 million bpd in early April, down sharply from more than 20 million bpd in February before the crisis, with total export losses exceeding 13 million bpd.
The impact has extended to refining activity, with facilities in the Middle East and Asia cutting throughput by around 6 million bpd in April. As a result, global refinery runs are now expected to decline by an average of 1 million bpd throughout 2026.
Global oil inventories also fell sharply, with observed stocks declining by 85 million barrels in March as importers drew on reserves to offset supply shortages.
While the announcement of a two-week ceasefire has offered some relief, the IEA warned that it “remains unclear whether the ceasefire will turn into a lasting peace and a return to regular shipping flows through the Strait of Hormuz.”
The agency’s base case assumes that normal supply from the Middle East will resume by mid-year, though it acknowledged this outlook could prove optimistic.
In a more negative scenario involving a prolonged conflict, the IEA cautioned that “energy markets and economies around the world need to brace for significant disruptions in the months to come.”