The International Energy Agency (IEA) has warned that global oil markets will remain severely undersupplied through the end of the third quarter of 2026, even if the US-Iran conflict ends by early June. According to the IEA's latest report, the oil shock from the war has destabilized markets, prompting many countries to take measures to conserve fuel. The agency's base case assumes that flows through the Strait of Hormuz will gradually resume from June, but even this scenario leaves the market severely constrained. The IEA now expects global oil demand to outpace supply by 1.78 million bpd in 2026, with roughly 10.5 million bpd of Gulf production offline and the Strait of Hormuz closure hammering refinery operations, jet fuel production, and global supply chains.
The IEA's data reveals the extent of the supply disruption, with global oil supply falling by 12.8 million barrels per day since hostilities began. Output from Strait of Hormuz countries is down 14.4 million barrels per day from pre-war levels. The agency's projections show a 1.78 million bpd shortfall in 2026, marking a sharp reversal from the 410,000 bpd surplus estimated in last month's outlook and the nearly 4 million bpd oversupply forecast in December. The 10.5 million bpd of Gulf production offline represents a significant escalation from previous estimates, with the closure of the Strait of Hormuz creating additional infrastructure damage and feedstock shortages that are further constraining global supply. The cumulative global supply loss already stands at more than 1 billion barrels and could reduce global production by 3.9 million barrels per day across 2026.
The IEA projects that supply will begin a slow recovery from Q3 2026 but will not catch up with demand until October, when the balance edges into a modest surplus. According to the agency's report, "That overhang barely begins to offset the stock deficit accumulated since end-February." The agency also projects a cumulative oil liquids deficit of 900 million barrels by September 2026, which includes the IEA's coordinated release of 400 million barrels, leaving around 500 million barrels to be covered through industry stock draws. The 8.5 million barrels per day collapse in global oil inventories in Q2 2026 as Middle Eastern production falls demonstrates the immediate impact of the supply disruption on global energy markets.
The IEA has revised its demand projections upward, now estimating a 420,000 barrels per day decline this year, versus its earlier estimate of a modest 80,000 bpd decrease. The agency notes that "with demand weakness only partly offsetting the large supply shortfall, inventories keep falling until the final quarter of the year when a modest projected surplus begins to rebuild depleted stocks." Before the conflict, the IEA had expected annual demand to grow by 850,000 bpd, but the current projection shows global oil demand falling by 420,000 bpd to 104 million bpd over the full year - a decline more than five times the scale it projected last month. Restoring inventories, including strategic reserves, would likely require an additional 1 million barrels per day of supply beyond expected demand growth over the next three years.
