Oil supply disruption could be largest ever amid Middle East war: IEA
Synopsis
The Middle East conflict could trigger the largest oil supply disruption on record as shipping through the Strait of Hormuz remains blocked, the International Energy Agency said.
The Middle East conflict could trigger the largest oil supply disruption in global energy markets, the International Energy Agency (IEA) said on Thursday. The agency warned that oil supply could fall sharply as the Strait of Hormuz remains blocked following US and Israeli airstrikes on Iran.
Key highlights
- IEA warns of largest oil supply disruption in history
- Global supply expected to drop by about 8 million barrels per day in March
- Gulf producers cut output by at least 10 million barrels per day
- Strait of Hormuz blockade disrupts global energy flows
- IEA approves record 400 million barrel strategic reserve release
IEA warns of historic oil supply shock
The International Energy Agency (IEA) said global oil supply could decline by around 8 million barrels per day in March, according to its latest monthly oil market report.
That reduction represents nearly 8% of global oil demand and reflects the disruption of shipping through the Strait of Hormuz, a key energy transit route along Iran’s coast.
The blockade began after US and Israeli airstrikes on Iran on February 28, which triggered a wider regional conflict.
The agency noted that the disruption marks the largest supply shock in the history of global oil markets.
Gulf producers cut output amid conflict
Oil production across the Middle East has also fallen sharply as the conflict spreads.
The IEA said Gulf producers including Iraq, Qatar, Kuwait, the United Arab Emirates and Saudi Arabia have reduced output by at least 10 million barrels per day.
The agency warned that production losses could persist because restarting oil fields and infrastructure may take time.
“Shut-in upstream production will take weeks and, in some cases, months to return to pre-crisis levels,” the agency said.
Strategic reserves released to stabilise markets
In response to the supply shock, the IEA approved the release of 400 million barrels of oil from strategic reserves held by member countries.
IEA Executive Director Fatih Birol said the move had already influenced market sentiment.
Speaking in Istanbul, Birol said energy markets were in an “extremely critical period”, though he did not specify the pace at which reserves would be released.
Oil prices rise as supply risks intensify
Oil prices moved higher as the conflict disrupted regional energy infrastructure.
Brent crude, which reached $119.50 per barrel earlier in the week, traded near $97 per barrel on Thursday, reflecting continued supply concerns.
Iran has intensified attacks on energy and transport infrastructure across the Middle East, raising fears of prolonged disruptions to shipping through the Strait of Hormuz.
War dampens global oil demand outlook
The IEA also warned that the conflict could weaken global oil demand.
Airlines have cancelled flights across parts of the region, while higher fuel costs and economic uncertainty could curb consumption.
The agency expects global oil demand in March and April to be about 1 million barrels per day lower than earlier estimates.
For 2026, world oil demand growth is forecast to rise by about 640,000 barrels per day, down 210,000 barrels per day from the previous projection.
The revised outlook is also considerably lower than OPEC’s demand forecast, which projected stronger growth.
Global supply still projected to exceed demand
Despite the sharp supply disruption in the near term, the IEA still expects global oil supply to grow faster than demand in 2026.
The agency forecasts global supply will increase by 1.1 million barrels per day, though that estimate is lower than the 2.4 million barrels per day increase projected last month.
Overall, the IEA expects the global market to remain in supply surplus, estimating a surplus of 2.46 million barrels per day in 2026, compared with 3.73 million barrels per day in the previous forecast.
Alternative export routes may ease pressure
Some Middle Eastern producers are attempting to mitigate disruptions by shifting exports away from the Strait of Hormuz.
The IEA said Saudi Arabia and the United Arab Emirates are expanding the use of alternative pipelines and export routes that bypass the strait.
These efforts could partially restore global supply starting from April through June, helping offset some of the lost shipments.
Outlook
Energy markets are expected to remain volatile as investors monitor developments in the Middle East conflict and the pace of strategic reserve releases.
Analysts will also watch whether alternative export routes can restore supply flows and stabilise oil markets in the coming months.
FAQs
Q1: Why does the IEA say this is the largest oil supply disruption?
The agency estimates global supply could fall by about 8 million barrels per day, nearly 8% of global demand, due to the Strait of Hormuz blockade.
Q2: Which countries have cut oil production?
Gulf producers including Saudi Arabia, Iraq, Qatar, Kuwait and the UAE have reduced output considerably amid the conflict.
Q3: What action has the IEA taken to stabilise markets?
The agency approved the release of 400 million barrels of oil from strategic stockpiles, the largest such intervention on record.
Q4: Will oil supply recover soon?
The IEA said production and shipping flows may take weeks or months to fully recover, though alternative export routes could help restore some supply from April.
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