The International Energy Agency (IEA) warned that continued disruption in the Strait of Hormuz is creating one of the largest oil market shocks in recent history, with global oil demand now expected to decline in 2026 as supply losses deepen and inventories fall rapidly.
In its latest Oil Market Report, the IEA forecast global oil demand to decrease by 420,000 bbl/d year-on-year in 2026 to 104 million bbl/d. The agency said the outlook marked a sharp reversal from pre-conflict expectations and represented one of the few annual demand contractions outside major global crises.
The largest decline is expected during the second quarter of 2026, when global oil demand is projected to fall by 2.45 million bbl/d compared with the previous year. The decline is expected to be led by weaker petrochemical activity and reduced aviation demand.
At the same time, the conflict linked to Iran and the Strait of Hormuz continues to restrict Gulf exports and pressure global oil supply.
According to the report, world oil supply fell by a further 1.8 million bbl/d in April to 95.1 million bbl/d, bringing cumulative supply losses since February to 12.8 million bbl/d. Production from Gulf suppliers affected by the Strait disruption remained 14.4 million bbl/d below pre-conflict levels.
The IEA said cumulative supply losses from Gulf producers have now exceeded 1 billion barrels, describing the situation as an unprecedented supply shock.
The agency stated that more than ten weeks after the conflict in the Middle East began, supply disruptions linked to the Strait of Hormuz were draining global oil inventories at a record pace.
Despite the scale of the disruption, the IEA said the imbalance has been partially moderated because the oil market had already been oversupplied before the conflict began and because both producers and consumers have adjusted rapidly.
Saudi Arabia and the UAE have redirected part of their exports to terminals outside the Strait, while Atlantic Basin exporters including the United States, Brazil, Canada, Kazakhstan and Venezuela have increased shipments to Asia and other affected markets.
The report highlighted the growing importance of emergency inventories and strategic reserves in stabilizing supply. Global observed oil inventories fell by 129 million barrels in March and another 117 million barrels in April. OECD on-land stocks alone declined by 146 million barrels in April.
Benchmark crude prices remained highly volatile as markets reacted to uncertainty surrounding possible negotiations between the United States and Iran.
North Sea Dated crude traded within a range of nearly $50 per barrel during April and averaged $120.36 per barrel for the month after rising about $16.50 month-on-month.
According to the IEA, crude prices briefly climbed to as high as $144 per barrel before dropping below $100 and rebounding again as uncertainty persisted over a possible agreement to reopen the Strait.
Refining markets are also facing mounting pressure. Global refinery throughput is forecast to decline by 4.5 million bbl/d in the second quarter as operators deal with infrastructure damage, export restrictions and reduced feedstock supply.
The agency warned that although weaker refinery activity has temporarily reduced pressure in crude markets, supply tightness is increasingly spreading into refined product markets, especially middle distillates and jet fuel.
China, Japan, South Korea and India have all reduced seaborne crude imports sharply since February as refiners cut operating rates and governments seek to manage supply disruptions.
The IEA’s base-case scenario assumes flows through the Strait of Hormuz gradually resume later this year, allowing oil demand to recover toward the end of 2026. However, the agency warned that supply recovery is likely to lag behind demand, leaving global oil markets undersupplied through at least the fourth quarter.
The report concluded that continued inventory declines and supply uncertainty are likely to sustain elevated price volatility ahead of the peak summer demand season.
