LONDON: Global oil supply will fall short of total demand this year as the Iran war wreaks havoc on Middle East oil production and drains inventories at an unprecedented pace, the International Energy Agency (IEA) says.
It has upended its earlier outlook calling for a surplus.
The United States and Israel’s war with Iran, subsequent damage to Iran and its Gulf neighbours’ oil infrastructure and the effective closure of the Strait of Hormuz have caused the largest oil supply crisis in history in the IEA’s view, sending oil prices skyrocketing.
“With Strait of Hormuz tanker traffic still restricted, cumulative supply losses from Middle East Gulf producers already exceed one billion barrels with more than 14 million barrels per day (bpd) of oil now shut in, an unprecedented supply shock,” the agency, which advises industrialised countries, said in a monthly report.
“The world is drawing oil inventories at a record pace as importing countries confront unprecedented disruptions to Middle Eastern supply,” it said.
The Organisation of the Petroleum Exporting Countries (Opec) in a report also highlighted falling output as the Iran war constrains exports from some of its top producers in the Middle East.
The IEA forecasts imply that supply will come in 1.78 million bpd below total demand in 2026, erasing a 410,000 bpd surplus projected in last month’s report and a close to four million bpd surplus in its December report.
“Our latest supply and demand estimates imply that the market will remain severely under-supplied through the end of the third quarter of 2026 (3Q26), even assuming the conflict ends by early June,” the Paris-based agency said, adding that the 2Q26 deficit will be as stark as six million bpd.
The IEA’s base-case forecast is for a gradual resumption of traffic through the Strait of Hormuz from 3Q26 onwards, it said, which could see the market return to a “modest surplus” by 4Q26, allowing depleted stocks to begin to rebuild.
Supply losses led to a 246 million barrel drawdown in global oil inventories in March and April, the IEA said, which could increase price volatility ahead of the peak summer demand period. The 32-member IEA coordinated the largest-ever release of 400 million barrels of oil from strategic reserves in March in a bid to calm markets.
It said around 164 million barrels of that total has already been released.
Overall global oil supply will fall by around 3.9 million bpd across 2026 due to the war, the agency said, slashing its previous forecast, which had projected a 1.5 million bpd drop.
The IEA now sees demand falling by 420,000 bpd this year, compared with a previous forecast of an 80,000 bpd drop.
Consumption is also under pressure due to the war as price spikes lead to demand destruction and slower economic growth.
“The petrochemical and aviation sectors are currently most affected, but higher prices, a weaker economic environment and demand-saving measures will increasingly impact fuel use.”
Opec lowered its oil demand forecast for 2026 on Wednesday although, unlike the IEA, it still expects demand to rise this year. Data in the report indicates that Opec+ – which includes Opec plus Russia and other allies – is pumping much less than the volume needed to balance the market this year, according to a Reuters calculation.
Opec+ produced just 33.19 million bpd in April, the report said, a further decline from March due to the ongoing Hormuz disruption. Opec forecast that demand for Opec+ crude will average 42.7 million bpd in 2026.
The IEA said it will publish its first supply and demand forecasts for 2027 in its June report – a delay from April caused by the war – while its 2026 annual oil report will be delayed from June 17 with no new date yet set for its release. — Reuters
