The International Energy Agency (IEA) has forecasted a decrease in global oil demand for the first time since the Covid-19 pandemic, attributing this decline to the ongoing conflict in Iran, which has disrupted crude production and exports in West Asia.
According to the latest Oil Market Report from the IEA, global oil demand is anticipated to fall by 1 million barrels per day (bpd) year-on-year in 2026, marking the first annual drop in six years.
The IEA stated, “Global oil demand is projected to decline by 1 mb/d this year before rebounding by 2 mb/d in 2027.”
This decrease is primarily driven by disruptions stemming from the closure of the Strait of Hormuz, a crucial shipping route for the international oil and gas trade.
Despite these challenges, the IEA reports that global oil demand is beginning to recover after reaching a low point in May. Increased consumption is projected due to seasonal demand and enhanced fuel supplies, which are helping to alleviate pent-up consumption.
The agency estimates that the rate of annual demand contraction will decrease from 4.8 million bpd in the second quarter of 2026 to 1.7 mb/d in the third quarter, before experiencing growth of 1.2 mb/d in the fourth quarter.
Although a recovery appears to be on the horizon, the IEA emphasizes that the situation remains highly unpredictable. Their projections are based on the assumption of a ceasefire and a gradual reopening of the Strait, which would allow for the normalization of tanker traffic, oil production, and refinery operations.
However, recent hostilities between the United States and Iran have raised new concerns. Attacks on vessels and slower shipping movements through the Strait of Hormuz highlight the risk that escalating tensions could further delay recovery efforts and tighten global energy markets.
The IEA also noted that the global oil market is expected to shift back to a surplus later this year, contingent on the recovery of tanker flows through the Strait, which would enable producers to resume output and Middle Eastern refiners to restart fuel shipments.
The report concluded by stating that the recent exchanges of fire in the Gulf underscore the risks associated with failing to achieve a lasting peace agreement, which is deemed essential for the stabilization of oil markets.
