Global oil supply and demand will both contract sharply this year as the fallout from the Iran war ripples across products and regions, with only a gradual recovery in Gulf exports and output ahead, the International Energy Agency said on Wednesday.
Supply is set to fall by 3.9 million barrels per day to 102.4 million bpd in 2026, before rebounding by 8 million bpd to 110.3 million bpd next year, the Paris-based agency said in its monthly report.
Demand is forecast to decline by 1.1 million bpd this year – a downgrade of 700,000 bpd from May's report – as second-quarter deliveries plunge by 5 million bpd, the first quarterly drop since 2020.
“While the US‑Iran interim agreement paves the way for a rebound in Middle East exports, operational and political constraints, including prolonged demining and unresolved transit arrangements, leave downside risks to the outlook,” the report said.
The US and Iran have reached an interim agreement to end the nearly four-month conflict and reopen the Strait of Hormuz, through which more than a fifth of the world's oil and liquefied natural gas normally passes each day. The deal, which extends nuclear negotiations by 60 days and lifts a US blockade on Iranian oil traffic, is due to be signed in Switzerland on Friday.
Gulf production and exports, impacted by Iranian missile and drone strikes, are not expected to recover immediately, as mines must be cleared from the main shipping lanes and supply chains take time to normalise. The IEA has previously cautioned that flows may take at least two months to resume even after the Strait of Hormuz reopens, with a full return to prewar levels unlikely before early 2027.
Shipments through the strait were already rising sharply in early June, supported by ship-to-ship transfers in the Gulf of Oman, lifting total flows from a May low of 9.6 million bpd to about 12 million bpd.
In May, global supply fell to 94.5 million bpd, down 13.6 million bpd from pre-conflict levels. Opec+ output dropped 1.1 million bpd to 35.9 million bpd, with Iranian crude alone shut in by 1.1 million bpd as the US blockade bit.
The disruption ranks among the worst supply shocks in decades. Opec production collapsed by nearly 8 million bpd in March, exceeding the drawdown during the 2020 pandemic and the 1991 Gulf War, with Saudi Arabia and Iraq leading the cuts.
The demand hit has spread well beyond the petrochemical and aviation sectors that were first affected, with Asia and the Middle East the worst hit.
Chinese apparent demand is set for its first significant annual decline since the oil crises of the 1970s and early 1980s. Opec, which has consistently estimated a smaller demand impact than the IEA, cut its own 2026 growth forecast to 970,000 bpd last week.
