The International Energy Agency (IEA) has reduced its forecast for global oil demand this year in response to supply disruptions stemming from the Gulf supply crisis, and it now expects flows through the Strait of Hormuz to recover slowly to 8 million barrels a day in 2027.
In its monthly report, the IEA said the outlook for 2026 has been revised sharply lower. The agency now projects global oil demand will fall by 1.1 million barrels a day in 2026 - a substantial downgrade from its earlier estimate of a 420,000-barrel-a-day decline. The downward revision reflects elevated prices and the severe supply interruptions caused by the conflict.
Looking further ahead, the IEA expects demand to rebound in 2027. The agency forecasts demand growth of 2 million barrels a day that year as trade flows normalise, oil prices ease and economic conditions improve.
The report also referenced recent diplomatic movement in the region. The United States and Iran have reached a preliminary agreement to end hostilities, with a formal signing expected on Friday. The IEA described this accord in its monthly update as the most significant breakthrough in negotiations since the war began.
"While details of the deal have yet to be clarified and several issues remain outstanding, it is an encouraging step forward," the IEA said. "A full recovery will not be immediate, however, as mines will have to be removed from the main shipping lanes and supply chains will take time to normalise."
Market reaction has been apparent in crude benchmarks. Brent crude slipped below $80 a barrel on Wednesday, and U.S. West Texas Intermediate eased to around $76. Brent has fallen more than 8% over the past week and is trading at its lowest levels since early March.
On the supply side, the IEA expects global supply to decline by 3.9 million barrels a day this year, with roughly one-fifth of the world’s oil supply effectively trapped in the Persian Gulf. The agency projects that supply will rebound to 8 million barrels a day next year as disruptions unwind.
The report detailed the scale of the current shortfall relative to prewar activity. Global output in May was 13.6 million barrels a day below prewar levels. Exports from Gulf producers fell by 1.1 million barrels a day and were nearly 15 million barrels a day below February levels.
Inventories have come down markedly as well. Global observed inventories declined by 143 million barrels in May, producing an average pace of stock draws of 3.8 million barrels a day since the conflict began. OECD government inventories decreased by 163 million barrels, reaching their lowest level since December 1990, according to the IEA.
This update from the IEA underscores a combination of disrupted physical flows and market-sensitive demand responses that have pushed near-term oil balances tighter. The agency’s forecast assumes an improving picture in 2027 as shipping lanes are cleared and normal trade patterns resume, though it cautions the recovery will not be immediate.