IEA warns of ‘lost period’ in global oil demand

The International Energy Agency has issued a stark warning regarding the global energy landscape, stating that consumption may need to decline even further in the coming months. As the war involving Iran drags on with no immediate diplomatic resolution in sight, the Paris-based organization cut its forecast for global oil demand. Officials noted that the contraction is now anticipated to reach 2.5 million barrels a day this year, deepening previous estimates by 940,000 barrels daily and marking the steepest annual average consumption loss since the 2020 coronavirus pandemic.

This severe market shock stems from a compounding set of geopolitical conflicts, most notably the ongoing hostilities in the Middle East and the protracted Russia-Ukraine war, which has now entered its fifth year. The energy watchdog reported that world oil supply is on track to drop by 5.7 million barrels per day in 2026, representing a roughly 6% decline compared to 2025 levels. Meanwhile, trade flows face profound disruptions as fighting intensifies around critical maritime choke points, including the Strait of Hormuz where tanker attacks have spiked, and the Bab el-Mandeb strait where Yemen-based Houthi militants clash with Saudi-backed forces.

Commercial inventory buffers have drawn down at historic rates to cushion the blow, but the global refining system is now described as stretched to the limit. The agency indicated that an average global oil deficit of approximately 1.7 million barrels a day will persist through the year, pushing back expectations for a return to a supply surplus into 2027. Consequently, the crisis is hitting specific sectors hard, with the heaviest impact falling directly on middle distillates such as diesel and key feedstocks utilized by petrochemical plants across Asia.

Market realities have quickly reflected these severe structural deficits, with international benchmark Brent crude surging past $100 a barrel for the first time since July. While prices saw a slight downward correction toward the end of the week—with Brent trading around $104.44 and West Texas Intermediate hovering near $99.86—both major benchmarks remained on track to close above the triple-digit threshold for the first time since mid-May. With commercial buffers rapidly depleting and diplomatic talks deadlocked, the agency underscores that market balancing will increasingly rely on forced demand reduction rather than voluntary supply recovery.