IEA Slashes Oil Outlook as Middle East Conflict Disrupts Global Markets

The International Energy Agency has sharply reduced its forecasts for global oil supply and demand growth, warning that ongoing conflict in the Middle East is disrupting energy flows and placing fresh strain on the world economy.

In its latest monthly report, the Paris-based agency said global oil demand is now expected to decline by 80,000 barrels per day in 2026. The revised outlook marks a significant shift from its previous projection, which had anticipated a year-on-year increase of 640,000 barrels per day.

The agency said rising prices and limited availability of crude are beginning to weigh heavily on consumption. “Demand destruction will spread as scarcity and higher prices persist,” the IEA noted, pointing to weakening fuel use across several regions.

The steepest declines in consumption have been recorded in the Middle East and the Asia-Pacific, where economies are particularly sensitive to energy costs and supply disruptions. Analysts say the combination of reduced industrial activity and higher fuel prices is already curbing demand in key markets.

On the supply side, the outlook has also deteriorated. The IEA now expects global oil supply to fall by 1.5 million barrels per day this year, reversing last month’s projection of a 1.1 million barrel per day increase. The downgrade reflects mounting disruptions linked to attacks on energy infrastructure and restricted shipping routes.

A central factor behind the upheaval is the effective closure of the Strait of Hormuz, one of the world’s most critical waterways for oil transport. The IEA described the situation as the largest oil supply disruption in history, with an estimated 10.1 million barrels per day lost in March alone.

The blockage of this key route has significantly curtailed exports from major producers in the Gulf, tightening global supply and driving volatility in energy markets. Traders and analysts have warned that prolonged disruption could deepen the imbalance between supply and demand, pushing prices higher and increasing pressure on economies already facing inflation concerns.

The agency’s revised outlook highlights the broader economic consequences of the conflict. Higher energy costs are expected to slow growth, particularly in import-dependent countries, while uncertainty over supply continues to weigh on market confidence.

Although some diplomatic efforts are ongoing to stabilise the region, the IEA said the scale of current disruptions suggests that recovery in oil flows may take time. The agency added that both producers and consumers are likely to face continued challenges as the market adjusts to reduced availability and shifting demand patterns.

The updated forecasts underline how geopolitical tensions are reshaping the global energy landscape, with the balance of supply and demand increasingly influenced by developments in the Middle East.