The International Energy Agency has warned that global oil demand could contract at its fastest rate since the COVID-19 pandemic, as the effective closure of the Strait of Hormuz triggers what may be the largest supply disruption in history.
In its latest Oil Market Report (OMR), the agency said the ongoing conflict in the Middle East led to a sharp decline in global oil supply, which fell by 10.1 million barrels per day (b/d) in March. Demand also dropped by 800,000 b/d year-on-year during the period.
The supply shock has forced refineries across the Middle East and Asia to cut processing runs by about 6 million b/d in April. The IEA expects total global refinery runs to decline by 1 million b/d in 2026.
According to the agency, global oil demand is projected to fall by 2.3 million b/d year-on-year in April, followed by a 1.5 million b/d decline in the second quarter. For 2026 as a whole, demand is now forecast to contract by 80,000 b/d; a sharp reversal from the IEA’s earlier projection of 640,000 b/d growth. The agency warned that if supply disruptions persist beyond May, the scale of demand destruction could intensify significantly.
This outlook contrasts sharply with projections from the Organization of the Petroleum Exporting Countries, which has maintained its global oil demand growth forecast at 1.38 million b/d despite the ongoing crisis.
Asia has borne the brunt of the demand slowdown so far, with petrochemical producers cutting output due to shortages of key feedstocks such as LPG, ethane, and naphtha. These products alone account for 1.8 million b/d of the anticipated demand decline in April.
Beyond industrial activity, households and businesses have also been affected, while widespread flight cancellations across the Middle East, Asia, and Europe have led to a steep drop in jet fuel consumption.
The IEA noted that soaring crude prices are likely to further erode demand, particularly in OECD economies, where higher fuel costs are already feeding through to retail markets.
The agency outlined two possible scenarios for the months ahead. In its baseline case, oil flows begin to recover from May, potentially shifting the market from a supply deficit to a surplus in the second half of the year.
However, under a prolonged disruption scenario, demand could fall by as much as 5 million b/d year-on-year on average between the second and fourth quarters of 2026. This would push the global call on inventories to an “untenable” 6 million b/d, forcing further demand curtailment to stabilize the market and avert deeper economic fallout.
Current flows through the Strait of Hormuz remain severely constrained. The IEA estimates that shipments of crude, natural gas liquids, and refined products from the Middle East Gulf averaged just 3.8 million b/d in early April, down sharply from over 20 million b/d in February before the conflict.
Although Saudi Arabia, the UAE, and Iraq have ramped up exports via alternative routes, increasing volumes from about 4 million b/d pre-crisis to 7.2 million b/d, the region still faces a net export loss exceeding 13 million b/d.
The disruption has also significantly impacted global oil inventories. Observed stocks fell by 85 million barrels in March, including a 205 million barrel drawdown outside the Middle East Gulf. Meanwhile, with limited export routes available, crude and product storage within the region has surged, with floating storage rising by 100 million barrels and onshore inventories increasing by an additional 20 million barrels.
