The International Energy Agency (IEA) has significantly reduced its 2026 global oil supply forecast by 6% as the ongoing Iran war continues to disrupt markets and delay a recovery in Middle East oil flows [1]. The agency now expects world oil supply to decline by 5.7 million barrels per day (bpd) in 2026, which is about 6% lower than in 2025 and a sharper drop compared to the 4% annual decrease projected in the IEA's August update [1].
Global oil demand is also forecasted to fall more than previously anticipated, with the IEA now projecting a decrease of 2.5 million bpd this year, compared to its earlier estimate of a 1.6 million bpd decline [1]. This downward revision is attributed to the ongoing diplomatic impasse between the U.S. and Iran, which has delayed the prospect of a truce, as well as renewed attacks in the Strait of Hormuz and the Red Sea's Bab el-Mandeb choke point [1].
The IEA highlighted that shrinking inventories and a global refining system 'stretched to the limit' could further tighten oil markets, increasing the risk of demand destruction if conflicts persist [1]. The agency emphasized the urgent need for progress in resolving both the Middle East conflict and the Russia-Ukraine war, now in its fifth year, to prevent further market tightening [1].
Despite oil prices trading lower on Friday morning, with Brent crude futures for November down 3% at $104.44 per barrel and U.S. West Texas Intermediate futures for October down 2.6% at $99.86, both benchmarks could still end the week above $100 per barrel for the first time since mid-May [1]. The recent price surge is linked to U.S. and Iran exchanging attacks on tankers near the Strait of Hormuz and escalating fighting between Saudi Arabia and Iran-backed Houthis in Yemen [1].
CONCLUSION
The IEA's latest report signals a worsening outlook for global oil supply and demand due to ongoing geopolitical conflicts, with inventories and refining capacity under severe strain. Oil prices remain volatile but elevated, reflecting heightened market uncertainty and the risk of further tightening if conflicts are not resolved.