IEA: Global oil market hit by historic supply shock amid Middle East conflict

Global oil markets have been severely disrupted by the ongoing Middle East conflict, with supply losses, surging prices, and weakening demand reshaping the 2026 outlook, the International Energy Agency (IEA) said in its April issue Oil Market Monthly Report (OMR).

Middle East conflict drives historic oil supply disruption

According to IEA data, global oil supply plunged by 10.1 million b/d to 97 million b/d in March as attacks on energy infrastructure and restrictions on tanker movements through the Strait of Hormuz triggered the largest disruption in history. OPEC+ production fell by 9.4 million b/d month-on-month to 42.4 million b/d, while non-OPEC+ supply declined by 770,000 b/d to 54.7 million b/d. The IEA report also estimates that these disruptions could result in a loss of 440 million bbl for April.

Oil exports from the Gulf collapsed, with overall losses exceeding 13 million b/d. Shipments through the Strait of Hormuz averaged around 3.8 million b/d in early April, compared with more than 20 million b/d in February. Exports through alternative routes—most notably from the west coast of Saudi Arabia and Fujairah on the east coast of the UAE, as well as the ITP pipeline that runs from Iraq to Ceyhan in Türkiye—had increased to 7.2 million b/d from less than 4 million b/d before the war.

The supply shock drove oil prices sharply higher. North Sea Dated crude was trading around $130/bbl, about $60/bbl above pre-conflict levels, while physical crude prices surged toward $150/bbl, significantly exceeding futures prices. Refined product markets also tightened, with middle distillate prices in Singapore reaching above $290/bbl.

IEA cuts oil demand outlook as prices surge

Global oil demand is now expected to decline by 80,000 b/d in 2026, a downward revision of 730,000 b/d from last month’s forecast. Demand fell by 800,000 b/d year-on-year in March and is projected to decline by 2.3 million b/d in April. An estimated 1.5 million b/d year-on-year drop in second-quarter 2026 would be the sharpest since COVID-19, IEA said.

The contraction has been most pronounced in petrochemical feedstocks, according to IEA. In April, LPG/ethane and naphtha demand declined by 1.8 million b/d, while transport fuels such as gasoil, gasoline and jet fuel each fell by around 1%.

Regional impacts vary. OECD demand is forecast to decline by 240,000 b/d in 2026, while non-OECD demand is expected to grow by 150,000 b/d, partially offset by a 250,000 b/d decline in the Middle East. China is projected to increase demand by 80,000 b/d and India by 130,000 b/d, while the Middle East records the largest regional contraction at 250,000 b/d.

Oil inventories have been drawn down to compensate for supply shortages. Global observed oil stocks fell by 85 million bbl in March, including a 205 million bbl draw outside the Middle East Gulf. At the same time, floating storage in the Middle East rose by 100 million bbl and onshore crude stocks in the region increased by 20 million bbl, while China added 40 million bbl of crude to storage.

In April, Middle East and feedstock-constrained refineries in Asia reduced runs by around 6 million b/d to 77.2 million b/d. Global crude runs are expected to decline by 1 million b/d on average in 2026 to 82.9 million b/d.

A two-week ceasefire announced on Apr. 7 has provided limited relief, but uncertainty remains over whether it will lead to sustained recovery in shipping flows through the Strait of Hormuz, IEA noted. A US blockade on vessels entering or departing Iranian ports was set to further complicate the outlook.

Two scenarios could outline the potential path forward, IEA said. In the base case, oil shipments resume gradually from May, with market balances shifting to a surplus of 2.5 million b/d in second-half 2026. In a protracted disruption scenario, supply shortfalls persist, requiring stock draws of 6 million b/d and leading to cumulative losses approaching 2 billion bbl by yearend. The trajectory of the Strait of Hormuz remains the central factor determining supply recovery, price stability, and the broader outlook for global oil markets.