Global oil demand is expected to decline for the first time since 2020 as the war in Iran wreaked havoc on production and exports in the Middle East, the International Energy Agency (IEA) said on Friday.
Global oil demand is expected to decline by 1 million bpd year-on-year in 2026, which would mark its first annual decline since the peak of the Covid-19 pandemic in 2020, the IEA said in its latest oil market report.
This year’s contraction is “very asymmetric in terms of products and in regional terms”, like the closure of the Strait of Hormuz — the vital shipping route for oil and gas – disrupted exports via the Persian Gulf, the agency noted.
A recovery is underway, the researchers added, while warning that a further escalation of the conflict could complicate matters and further darken the outlook.
The IEA’s forecasts assume a ceasefire and the gradual reopening of Hormuz, an outcome that appears increasingly uncertain as the U.S. and Iran hostilities exchanged this week. A number of ships were attacked and traffic in the strait slowed again.
“As the global oil market balance looks set to return to surplus towards the end of the year, forecasts are based on the assumption that tanker flows across the strait will gradually recover, allowing producers to restart fields and refiners in the Middle East and elsewhere to resume product shipments,” the IEA writes.
“New exchanges of fire in the Gulf this week highlight the risks of failing to reach a lasting peace agreement, essential to the normalization of oil markets.”
Oil prices fell slightly on Friday, with a global benchmark Brent crude futures for September delivery rising to $76.25 per barrel while the U.S. West Texas Intermediate Crude Futures remained stable at $72.09.
Gradual recoveryThere will be no “rapid or linear” recovery as the IEA expects a “very uncertain and unstable situation” in the region, Toril Bosoni, the IEA’s head of oil and markets, told CNBC’s “Squawk Box Europe” on Friday.
“But with significant growth from other producers and with demand levels lower than we expected before the war, we could return to a surplus through the end of the year and into next year,” she added.
“This would bring welcome relief to the market and allow countries to replenish their stocks.”
The United States said it would engage in “technical discussions” with Iran and remains committed to finding a solution to the conflict, despite airstrikes by both countries in recent days, MS Now reported Thursday, citing a US official.
US President Donald Trump has made his position clear and called Iranian attacks on commercial ships “acts of terrorism”, the official said, according to MS Now.
The comments come after Trump attended the NATO summit in Ankara, Turkey, said that the ceasefire with Iran was “over”.
