IEA Warns Global Oil Supply Will Fall Short Of Demand This Year As Hormuz Crisis Deepens

Global oil supply is now expected to fall below global demand this year, after major disruptions in the Middle East linked to the Iran conflict and restricted movement through the Strait of Hormuz, according to the International Energy Agency (IEA).

This is a reversal of its earlier view, which had expected a surplus.

The Paris-based IEA said damage to oil infrastructure in Iran and nearby Gulf countries, along with restrictions on tanker movement through the Strait of Hormuz, has created a serious supply disruption in global oil markets.

The agency estimates that more than 14 million barrels per day of oil production is currently shut in. It also said total supply losses from Gulf producers have now crossed 1 billion barrels.

Because of this, global oil inventories are being used up at a fast pace as importing countries receive less supply from the Middle East. The IEA said inventories fell by 246-250 million barrels during March and April alone.

The agency now expects global oil supply to fall short of demand by 1.78 million barrels per day in 2026.

This is a major change from last month, when it had forecast a surplus of 410,000 barrels per day, and an even earlier projection in December of a surplus close to 4 million barrels per day.

The IEA said the market is expected to stay undersupplied at least through the third quarter of 2026, even if the conflict eases by early June. It warned that the second quarter alone could see a deficit of up to 6 million barrels per day.

Its main assumption is that oil shipments through the Strait of Hormuz will slowly restart from June, but recovery will not be immediate.

Even after shipping resumes, the agency said it will take time for exports to return to normal because of damaged infrastructure, delays in logistics, and possible mine clearance in the waterway.

It added that after clearance, oil exports could still take two to three months to fully normalise, as tankers are repositioned, empty vessels return to service, and port schedules are adjusted.

Countries with limited storage and busy ports, including Iraq, are expected to take longer to recover. Saudi Arabia and the United Arab Emirates are likely to recover faster than others in the region.

The IEA also said global oil supply is expected to fall by about 3.9 million barrels per day in 2026 due to the war, a sharp revision from its earlier estimate of a 1.5 million barrels per day drop.

OPEC+ output has also been affected. Production from the group, which includes OPEC members and allies such as Russia, fell to 33.19 million barrels per day in April, down from March, mainly due to disruptions linked to the Strait of Hormuz.

The group’s annual output is now expected to fall by 4.7 million barrels per day because of losses in the Gulf.

At the same time, production outside OPEC+ is expected to rise by 820,000 barrels per day.

Output growth in the Americas has been revised up by more than 600,000 barrels per day since the start of the year, reaching around 1.5 million barrels per day on average.

Exports of crude from the Atlantic region have also increased by 3.5 million barrels per day since February, as shipments are being redirected to Asia.

Russian crude exports have also risen, as domestic fuel demand dropped and sanctions pressure eased temporarily.

The IEA said OPEC+ spare production capacity has fallen to a record low of just 170,000 barrels per day. Non-OPEC+ supply increased by 90,000 barrels per day in April compared to the previous month.

Oil demand has also been revised downward. The agency now expects demand to fall by 420,000 barrels per day this year, compared with an earlier forecast of a small decline of 80,000 barrels per day.

It said higher oil prices and weaker economic conditions are reducing consumption, especially in sectors like petrochemicals and aviation. Demand for jet fuel, liquefied petroleum gas, ethane, and naphtha has fallen the most.

The IEA added that even after shipping resumes, demand growth is expected to return only around August and stay close to 2025 levels for the rest of the year. It expects the oil market to remain in deficit until the final quarter of the year.

It also said rebuilding global oil inventories, including strategic reserves, could require an extra 1 million barrels per day of supply for the next three years, on top of normal demand growth.

Earlier in the year, about 400 million barrels were released from strategic reserves in coordination, and around 164 million barrels of that has already entered the market.

The IEA said it will release its first supply and demand forecast for 2027 in June, delaying it from April because of the ongoing situation. Its 2026 annual oil report has also been delayed.

OPEC, in its own report, also lowered its demand forecast for 2026, but still expects oil demand to grow this year, unlike the IEA.

In the market, Brent crude was trading above 106 dollars per barrel in early European trade, while West Texas Intermediate was near 97 dollars, as the conflict continues to pressure prices.

The IEA said the oil market will remain tight and highly sensitive to any supply changes until inventories begin to rebuild.

References: Reuters, WSJ