The International Energy Agency (IEA) has revised its outlook for global oil demand and supply, warning that 2026 and 2027 may become a "lost period" for growth in consumption. The agency no longer expects the Strait of Hormuz, a critical shipping route for global oil trade, to reopen to normal traffic this year due to stalled negotiations between the United States and Iran.
The IEA now anticipates a decline in oil demand of 2.5 million barrels per day (b/d) in 2026, a substantial increase from its previous estimate of a 1.6 million b/d drop. This downward revision reflects several factors, including high prices for refined fuels such as diesel, ongoing export disruptions in the Gulf region, and the continued closure of the Strait of Hormuz to regular shipments. The IEA links the tightening of supply routes mainly to the diplomatic deadlock over Iran’s relations with the US.
Oil prices have responded sharply to these developments. Brent crude surged as much as 14% during the recent week, reaching nearly $110 per barrel before easing back to around $105. Prices for refined products, especially diesel, have been driven higher as refining capacity has been constrained by ongoing Gulf supply restrictions and Ukrainian attacks on Russian refinery infrastructure. The agency warned that refinery systems are operating at full capacity, leaving few options to prevent further supply tightening and price increases in the near term.
On the supply front, global oil production fell by 1.6 million b/d to just over 100 million b/d last month. More than 10 million b/d of output from Gulf producers remains offline due to geopolitical tensions and infrastructure challenges. The overall reduction in oil supply for 2026 is projected at 5.7 million b/d, with any expected recovery from the Gulf region postponed until 2027.
Ukraine’s sustained strikes on Russian energy infrastructure have further exacerbated supply issues, cutting Russian oil exports by 410,000 b/d last month, bringing them to the lowest levels since 2018. In response to market concerns, the IEA has implemented a release of strategic oil reserves, amounting to 400 million barrels since March. As of last month, 320 million barrels had entered the market. However, this volume has recently slowed to a trickle, with only 20 million barrels released last month compared to 90 million barrels in May.
The combination of restricted shipping through the Strait of Hormuz, continued Gulf output disruptions, elevated refined product prices, and the slow pace of emergency stock releases has contributed to the agency’s bleak forecast. The IEA expects oil demand to recover slightly next year by 2.6 million b/d, but this would leave overall consumption only marginally above 2025 levels. This limited growth underscores the agency’s view that the next two years could be characterized by stagnation in global oil demand.