The International Energy Agency (IEA) has revised down its short-term oil outlook, projecting both global demand and supply will be lower than previously expected and will decline from 2025 levels as conflict in the Middle East interrupts energy flows and weighs on the global economy.
On the demand side, the IEA now expects global oil consumption to fall by 80,000 barrels per day (bpd) in 2026. That contrasts sharply with the 640,000 bpd year-on-year increase the agency had forecast in its previous monthly report. The IEA also projects a 1.5 million bpd decline in the second quarter, which it characterises as the steepest drop in consumption since the Covid-19 pandemic.
The agency said that demand destruction will spread as scarcity and higher prices persist. To date, the most pronounced falls in consumption have been concentrated in the Middle East and the Asia-Pacific region, with fuel types most affected including naphtha, liquefied petroleum gas (LPG) and jet fuel.
Supply-side projections were adjusted down sharply as well. The IEA now expects global oil output to drop by 1.5 million bpd this year, reversing a forecast made only a month earlier that had anticipated a rise of 1.1 million bpd. In March, observed global oil supply fell to 97 million bpd, while OPEC+ production decreased by 9.4 million bpd month-on-month to 42.4 million bpd.
The agency attributed the supply turmoil to attacks on energy infrastructure across the region and what it described as Iran's effective closure of the Strait of Hormuz. Those developments, the IEA said, resulted in the largest oil supply disruption in history, citing a loss of 10.1 million bpd in March.
Shipments through the Strait of Hormuz dropped to around 3.8 million bpd in early April, down from more than 20 million bpd in February before the crisis began. The IEA reported that the overall loss in oil exports has exceeded 13 million bpd.
The disruption has also impacted downstream operations. Refineries in the Middle East and Asia reduced runs by about 6 million bpd in April. Looking ahead, global crude runs are now expected to decline by 1 million bpd on average for 2026.
Stocks reflected the stress on supply: global observed oil inventories fell by 85 million barrels in March as importers drew down inventories to mitigate the shortfall.
There has been a limited reprieve following the announcement of a two-week ceasefire, but the IEA emphasised that it remains unclear whether the ceasefire will evolve into a lasting peace and allow a return to normal shipping flows through the Strait of Hormuz. The agency's base case assumes a resumption of regular deliveries from the Middle East by mid-year, while also acknowledging that this assumption could be too optimistic.
In a more adverse scenario in which conflict endures, the IEA warned that energy markets and economies around the world need to prepare for significant disruptions in the months ahead.