Investing.com — Global oil demand is on track to fall for the first time since 2020, the International Energy Agency (IEA) said Friday, as the war between Israel and Iran disrupted production and exports across the Middle East.
The agency projected in its latest monthly oil market report that world demand will decline by 1 million barrels a day this year compared with last year, marking the first annual drop since the depths of the Covid-19 pandemic.
The contraction is “highly skewed in both product and regional terms,” the IEA said, after the closure of the Strait of Hormuz disrupted exports through the Persian Gulf.
The agency said a recovery is underway but warned that renewed fighting could cloud the outlook further. Its forecast assumes a ceasefire holds and that the Strait gradually reopens, an outcome that looked increasingly uncertain this week after the U.S. and Iran traded fire. Several ships have come under attack, and traffic through the strait has slowed to a trickle once again.
“While the global oil market balance looks set to swing back to surplus towards the end of the year, the forecast hinges on the assumption that tanker flows through the Strait will gradually recover, allowing producers to restart fields and refiners in the Middle East and elsewhere to resume product shipments,” the IEA wrote. “Renewed exchanges of fire in the Gulf this week highlight the risks of not reaching a lasting peace agreement, which is a must for the normalization in oil markets.”
The IEA also lowered its outlook for Russian oil production, citing Ukraine’s intensifying drone campaign against the country’s energy infrastructure. Kyiv has escalated strikes on Russian oil refineries and related facilities in recent months in an effort to choke off funding for Moscow’s war effort.
“Continued strikes on refineries, storage facilities and transport infrastructure underpin a weaker production outlook and we have accordingly cut our Russian supply outlook for this year and next, by 85,000 barrels per day and 150,000 bpd respectively, to average 8.8 million bpd over the forecast period,” the agency said.
The IEA now expects Russia, the world’s third-largest oil producer, to pump 8.9 million barrels a day this year and 8.8 million barrels a day in 2027, down from 9.2 million barrels a day in 2025.