Global oil demand is set to contract at the fastest pace since the Covid-19 pandemic as the effective closure of the strait of Hormuz causes the largest supply disruption in history, the IEA said today.
In its latest Oil Market Report (OMR), the Paris-based agency said the war in the Middle East caused global oil supply to plummet by 10.1mn b/d in March and demand to fall by 800,000 b/d on the year. The supply losses have forced refineries in the Middle East and Asia to cut runs by around 6mn b/d in April, the IEA said, with total global runs expected to fall by 1mn b/d in 2026.
The agency forecasts global oil demand will drop by 2.3mn b/d on the year in April, 1.5mn b/d in the second quarter and by 80,000 b/d for 2026 as a whole. The IEA's previous forecast for this year was 640,000 b/d of demand growth. Should disruptions continue beyond May, demand destruction would be much higher, the IEA said.
The IEA's forecasts are in sharp contrast to those of Opec, which this week kept its global oil demand growth forecast unchanged at 1.38mn b/d, despite the war in the Middle East.
The largest hit to demand has so far been felt in Asia, the agency said, with petrochemical producers slashing output due to a loss of LPG/ethane and naphtha feedstocks. These two products alone account for 1.8mn b/d of the projected fall in demand for April, the IEA said.
Households and businesses have also been impacted and flight cancellations in the Middle East, Asia and Europe have caused sharp falls in jet fuel demand, the IEA said.
Beyond the immediate physical supply shock, the IEA said soaring oil prices would be the main driver of demand destruction "especially in the OECD where the pass-through into retail fuel prices is already well advanced".
The IEA presented two scenarios on how the supply shortages could unfold. In its base case, the agency assumes oil flows gradually return from May, which would flip the market from a supply deficit into a surplus in the second half of the year.
In a protracted scenario where supplies remain constrained for longer, demand could fall by 5mn b/d year-on-year on average from 2Q26 through 4Q26, the IEA said. This would lift the global call on stocks to an "untenable" 6mn b/d and force additional demand destruction measures to "balance the market and avoid even deeper economic damage."
Current supply through the strait of Hormuz remains highly restricted. The IEA said that loadings of crude, natural gas liquids and refined projects in the Mideast Gulf averaged around 3.8mn b/d in early April compared to more than 20mn b/d in February before the war.
While Saudi Arabia, the UAE and Iraq have increased exports through routes that bypass the strait — from about 4mn b/d before the war to 7.2mn b/d — the net loss in exports from the region is more than 13mn b/d, the IEA said.
The outages have seen global observed oil inventories to fall by 85mn bl in March, with stocks outside the Mideast Gulf falling by 205mn bl. But with the Mideast Gulf unable to use the strati of Hormuz, floating storage of crude and oil products inside the region rose by 100mn bl and onshore stocks by 20mn bl.
