The Iran war is causing unprecedented turmoil in oil markets, hitting 7.5% of global supply and an even bigger swath of exports, the International Energy Agency said.
“The war in the Middle East is creating the largest supply disruption in the history of the global oil market,” the IEA said in its monthly report on Thursday. The previous day, its members agreed to release an unprecedented 400mn barrels from emergency reserves to counteract the chaos.
The most immediate impact of the war on energy markets is the closure of the Strait of Hormuz, choking off oil and gas flows through the trade artery. With Gulf producer giants forced to cut output because they can’t export from the region, the conflict is eroding a global oil supply glut. It also means the effects will be felt well beyond when the waterway is reopened.
The IEA estimates that the war will slash global oil supply by 8mn barrels a day this month, or almost 250mn barrels in total. Flows through the strait, through which 20mn barrels of crude and products passed last year, are down by more than 90%, the IEA estimates.
The resulting price surge, flight cancellations and economic uncertainty are also taking a toll on demand, the agency said, cutting its estimates for global consumption growth this year by roughly 25% to 640,000 barrels a day.
That’s the lowest since it introduced forecasts for 2026 last April.
Brent crude climbed back above $100 a barrel in London on Thursday as two crude tankers were hit in Iraqi waters and Oman’s evacuated its key oil export terminal. There have been ongoing attacks on commercial shipping in the region since the war began.
While Saudi Arabia and the United Arab Emirates can divert some of their barrels on alternative routes, the effective closure of the strait has forced producers around the Gulf to collectively shutter roughly 10mn of daily production, according to the agency.
The supply shock has pared the IEA’s projections for a global surplus in 2026 by just over a third to about 2.4mn barrels a day.
Before the crisis, the IEA projected a record oil glut for this year as swelling supply from across the Americas — driven the US, Canada, Guyana and Brazil — exceeded growth in consumption.
Output losses in the Middle East are being tempered by higher output from producers outside of the Organization of the Petroleum Exporting Countries and its partners, as well as increases by OPEC+ members Kazakhstan and Russia, the IEA said.
The effective closure of Hormuz also jeopardizes about 4mn barrels a day of regional refining capacity, the agency said. Constraints on the availability of feedstock limits the ability of other regions to offset the squeeze, posing particular risks for supplies of diesel and jet fuel.
On Wednesday, IEA Executive Director Fatih Birol announced that the agency’s members — which consist of 32 OECD nations — would draw 400mn barrels from emergency reserves. Key details on the pace and duration of the planned releases weren’t specified.