Global oil supply to plunge below demand this year due to Iran war, IEA says

London: Global oil supply will not meet total demand this year as the Iran war wreaks havoc on Middle East ⁠oil production, the International Energy Agency said in its monthly oil market report on ‌Wednesday.

The US and Israel's war with ​Iran, subsequent damage to Iran and its Gulf neighbours' oil infrastructure and the effective closure of the Strait of Hormuz have caused the largest oil supply crisis in history, sending oil prices skyrocketing.

"With Hormuz tanker traffic still restricted, cumulative supply losses from Middle East Gulf producers already exceed 1 billion barrels with more than 14 million (barrels per day) ​of oil now shut in, an unprecedented ⁠supply shock," said the agency, which advises industrialised countries.

The IEA forecasts imply that supply will come in 1.78 million bpd below total demand in 2026, erasing a 410,000 bpd surplus projected in last month's report and a close to 4 million bpd surplus in its December report.

"Our ⁠latest supply and demand ‌estimates imply that the market will remain severely undersupplied through the end of 3Q26, even assuming the conflict ends by early June," the Paris-based agency said, adding that the ‌second-quarter deficit will be as stark as 6 million bpd.

The IEA's base-case forecast is for a gradual resumption of traffic through the ⁠strait from the third quarter onwards, it said, which could see the market return to a "modest surplus" by the fourth quarter, allowing depleted stocks to begin ‌to rebuild.

Supply losses led to a 246 million barrel drawdown in global oil inventories in ‌March and April, the IEA said, which could increase price volatility ahead of the peak ‌summer demand period.

The 32-member IEA coordinated the largest-ever release of 400 million barrels of oil from strategic ‌reserves in March in a bid to calm markets. It said around 164 million barrels of that total has already been released.

Overall global oil supply will fall by around 3.9 million barrels per day across 2026 due to the war, the ⁠agency said, slashing its previous ⁠forecast, which had projected a 1.5 million bpd drop.

The IEA now sees demand falling by 420,000 bpd this year, compared to a previous forecast of an 80,000 bpd drop.

Consumption is also under pressure due to the war as price spikes lead to demand destruction and slower economic growth, it said.

Oil prices were little changed on Wednesday, with Brent futures trading at $106.93 at 0805 GMT, down 84 cents from the previous close and 1 cent higher than their level at 0759 GMT before ​the report was published.

The IEA said it will publish its first supply and demand forecasts for 2027 ​in its June report - a delay ​from April caused by the war - while its 2026 annual oil report will be delayed from June 17 with no new date yet set ​for its release.

Later on Wednesday, rival forecaster OPEC will publish its own monthly oil market report.