Quick Read
- Global oil demand is projected to fall by 80,000 barrels per day in 2026 due to the ongoing conflict in the Middle East.
- OPEC production saw a record 27% drop in March, with Iraq’s output plummeting by 61% amid Strait of Hormuz disruptions.
- The IEA warns of potential ‘demand destruction’ as prices hover around $100 per barrel, with fears of further surges if the conflict escalates.
LONDON (Azat TV) – Global oil demand is set to contract this year, a stark reversal from previous growth projections, as the escalating United States-Israel war on Iran severely disrupts energy flows and impacts the global economy. The International Energy Agency (IEA) has dramatically revised its outlook, now forecasting an 80,000 barrel per day (bpd) decline in global oil demand for 2026, a significant downgrade from its earlier expectation of a 640,000 bpd increase. This downward revision follows a substantial 27% month-on-month drop in OPEC production during March, with output falling to 20.8 million bpd, largely due to disruptions stemming from the conflict and the closure of the Strait of Hormuz.
OPEC Production Suffers Record Decline Amid Conflict
Data released by OPEC shows a dramatic contraction in oil output from its Middle Eastern members in March. Iraq experienced the most significant hit, with production collapsing by 61% from 4.2 million bpd in February to 1.6 million bpd in March. Major declines were also recorded in Kuwait and the United Arab Emirates, with output falling by 53% and 44% respectively. Saudi Arabia, OPEC’s largest producer, saw a 23% reduction, producing 7.8 million bpd in March compared to 10.1 million bpd the previous month. This overall 27% decrease in OPEC’s total production from 28.7 million bpd in February marks the largest month-on-month fall since May 2020, surpassing even the initial COVID-19 lockdown impacts. The disruptions are directly linked to Iran’s actions following U.S.-Israel attacks, including its de facto control over the vital Strait of Hormuz, a critical chokepoint for global energy shipments.
Strait of Hormuz Disruptions Escalate Global Energy Concerns
The closure and disruption of traffic through the Strait of Hormuz have led to what the IEA describes as the largest oil supply disruption in history, with an estimated 10.1 million bpd lost in March. Iran’s actions to restrict passage through the strait in response to military actions have sent gas and petrol prices soaring worldwide. In an attempt to regain control and ensure energy security, the United States has announced a naval blockade on Iranian ports, following the failure of recent peace talks in Islamabad. This U.S. blockade further exacerbates concerns over global energy security and the reliable supply of goods dependent on petroleum. The IEA warns that oil demand could plummet further if the strait remains closed, urging global energy markets and economies to prepare for significant volatility. The flow of crude oil, refined fuels, and natural gas liquids through the strait has fallen drastically from over 20 million bpd in February to just 3.8 million bpd in early April.
Demand Destruction and Price Volatility
The IEA’s report highlights a phenomenon termed “demand destruction,” where scarcity and persistently higher prices lead to a permanent reduction in consumption. The deepest cuts in oil consumption have so far been observed in the Middle East and Asia Pacific regions, affecting naphtha, LPG, and jet fuel. The Paris-based watchdog anticipates a 1.5 million bpd drop in demand in the second quarter of this year, which would represent the most significant quarterly contraction since the COVID-19 pandemic. Amidst these supply shocks and geopolitical tensions, oil prices have reacted sharply. Brent crude futures have traded around $100 per barrel, fluctuating based on developments, including the U.S. blockade announcement. Analysts suggest that oil prices could surge to $150 a barrel in the event of an extended conflict. The volatile oil market is also influencing broader economic indicators, with rising energy costs contributing to increased government borrowing costs and impacting stock markets globally.
The escalating conflict in the Middle East and the resulting disruptions to vital energy transit routes like the Strait of Hormuz are not only creating immediate supply crunches but are also fundamentally altering global oil demand forecasts, signaling a period of sustained volatility and potential long-term shifts in energy consumption patterns.