The International Energy Agency has sharply revised down its forecasts for both oil supply and demand, warning that each is now expected to decline versus 2025 levels as the Middle East conflict continues to disrupt energy flows and weigh on the global economy.
The agency now expects global oil demand to contract by 80,000 barrels per day in 2026, a significant reversal from its previous forecast of a 640,000 bpd increase. It also pointed to a projected 1.5 million bpd drop in the second quarter, which would mark the steepest fall in consumption since the COVID-19 crisis.
“Demand destruction will spread as scarcity and higher prices persist,” the agency said, noting that declines have so far been most pronounced in the Middle East and Asia-Pacific, particularly across naphtha, LPG and jet fuel.
On the supply side, the Paris-based body now forecasts a 1.5 million bpd decline in global output this year, compared with a projected increase of 1.1 million bpd just a month ago. Global 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 said the disruption has been driven by attacks on regional energy infrastructure and Iran’s effective shutdown of the Strait of Hormuz, describing the situation 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, compared with more than 20 million bpd in February prior to the crisis, with total export losses exceeding 13 million bpd.
The shock has also affected refining activity, with plants in the Middle East and Asia reducing throughput by roughly 6 million bpd in April. As a result, global refinery runs are now expected to decline by an average of 1 million bpd over 2026.
Oil inventories have also been drawn down, with global stocks falling by 85 million barrels in March as importers tapped reserves to offset supply shortages.
While a two-week ceasefire announcement 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 flows from the Middle East will resume by mid-year, although it acknowledged that this outlook could prove overly optimistic.
In a downside scenario involving prolonged conflict, the IEA cautioned that “energy markets and economies around the world need to brace for significant disruptions in the months to come.”
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