IEA: Middle East war triggers the largest supply disruption in history
The war in the Middle East is creating the largest supply disruption in the history of the global oil market, the International Energy Agency (IEA) said in its March issue Oil Market Monthly Report (OMR).
Crude and product flows through the Strait of Hormuz have collapsed from about 20 million b/d before the conflict to only a trickle, while limited alternative export capacity and rising storage levels have forced Gulf producers to cut oil output by at least 10 million b/d, IEA said. Unless tanker traffic resumes quickly, supply losses are likely to deepen.
Global oil supply is expected to fall by 8 million b/d in March, as sharp curtailments in the Middle East are only partly offset by higher production from non-OPEC+ countries, as well as Kazakhstan and Russia following earlier disruptions this year.
Although the extent of the losses will depend on how long the conflict and shipping disruptions last, global oil supply is still projected to increase by 1.1 million b/d on average in 2026, with all of that growth coming from non-OPEC+ producers.
The conflict is also severely disrupting global petroleum product markets. Export flows through Hormuz have nearly ground to a halt, even though Gulf producers shipped 3.3 million b/d of refined products and 1.5 million b/d of LPG in 2025. More than 3 million b/d of refining capacity in the region has already shut down because of attacks and the loss of viable export routes, while refiners elsewhere may also face constraints as feedstock availability tightens.
Oil market, economy impact
In response, IEA member countries agreed unanimously on Mar. 11 to release 400 million bbl of emergency oil stocks to help ease market disruptions caused by the war. Global observed oil inventories stood at 8.21 billion bbl in January, the highest level since February 2021. OECD countries held about half of those volumes, with Chinese crude inventories accounting for 15%, oil on water 25%, and the balance held in other non-OECD countries.
“The coordinated emergency stock release provides a significant and welcome buffer, but in the absence of a swift resolution to the conflict, it remains a stop-gap measure. The ultimate impact on oil and gas markets and the broader economy from the conflict will depend not only on the intensity of military attacks and any damage to energy assets, but also, crucially, on the duration of disruptions to shipping through the Strait of Hormuz. Adequate insurance mechanisms and physical protection for shipping are key to the resumption of flows, which is of paramount importance for the oil market,” IEA said.
Demand is also taking a hit. Flight cancellations across the Middle East and major disruptions to LPG supply are expected to reduce global oil demand by about 1 million b/d in March and April compared with earlier estimates. Higher oil prices and a worsening global economic outlook pose additional downside risks. Global oil demand is now forecast to grow by 640,000 b/d year over year in 2026, down 210,000 b/d from last month’s estimate.
“The suspension of flights at major airports in the Middle East, with a knock-on effect on hubs elsewhere, has materially reduced global jet fuel demand. Plunging LPG and naphtha supplies are already forcing petrochemical plants to curb their production of polymers, aggravating the loss of Gulf petrochemical flows. LPG use in cooking and heating, especially in India and East Africa, is also at risk. More broadly, higher oil prices and a deteriorating economic outlook have begun to erode demand across the product spectrum,” IEA continued.
Oil prices have swung sharply since the US and Israel launched joint air strikes on Iran on Feb. 28. Supply disruptions tied to attacks on regional oil infrastructure and the halt in tanker traffic through the Strait of Hormuz sent Brent futures to near $120/bbl on Mar. 6, the highest since mid-2022.