The Paris-based energy watchdog has revised its forecasts, now expecting a sharper decline in global oil demand this year, while projecting a significant supply rebound by 2027.
The agency stated that restoring full oil shipments through the Strait of Hormuz, a critical global energy artery, is expected to take several months.
The International Energy Agency indicated that the disruption to oil supplies from the Gulf region will lead to a substantial drop in global oil demand until traffic through the Strait of Hormuz gradually normalizes. The agency forecasts a rebound in global oil supply of 8 million barrels per day by 2027.
Despite a planned interim agreement between the US and Iran this week, marking the most significant breakthrough in talks since the conflict began, the Paris-based agency noted that a complete restoration of crude shipments through this key shipping route will still require months.
Citing high oil prices and severe supply disruptions, the IEA, which represents Western nations and their allies, has downgraded its outlook. It now projects global oil demand will fall by 1.1 million barrels per day this year, a steeper decline than its previous forecast of a 420,000 barrel-per-day drop.
As trade normalizes, oil prices recede, and economic prospects improve, the agency predicts that global oil demand growth will recover to 2 million barrels per day next year.
The United States and Iran have reached a preliminary agreement to end hostilities, with a formal signing scheduled for this Friday. While the full terms have not been disclosed, reports suggest the deal includes a US waiver for sanctions on Iranian oil exports and a mutual lifting of naval blockades in the Strait of Hormuz.
International benchmark Brent crude fell below $80 per barrel on Wednesday, while West Texas Intermediate futures dropped to around $75 per barrel. Both benchmarks fell more than 5% in the previous session, closing at their lowest levels since early March.
In its latest monthly report released Wednesday, the IEA stated: "While the details of the agreement are not yet clear and several issues remain to be finalized, the talks have taken a positive step. However, a full and immediate recovery in crude shipments is not expected, as the main shipping lanes need to be cleared of mines, and the repair and normalization of various supply chains will take time."
The military conflict between the US, Israel, and Iran that erupted on February 28 paralyzed shipping in the Strait of Hormuz, a passage for about one-fifth of the world's oil and natural gas. Market analysts say a full recovery will likely take months, as shipping companies face multiple logistical and security challenges, including vessel redeployment, port scheduling, and marine insurance underwriting.
The IEA predicts that with nearly one-fifth of global crude production capacity trapped in the Persian Gulf, global oil supply will shrink by 3.9 million barrels per day this year before rebounding by 8 million barrels per day next year.
Global crude production in May was 13.6 million barrels per day below pre-conflict levels. Crude exports from Gulf producers fell by 1.1 million barrels per day, nearly 15 million barrels per day below the peak seen in February.
Iran's crude exports were hit hardest by the US naval blockade, plunging by 1.4 million barrels per day to just 230,000 barrels per day. Ship-to-ship transfer trades in the Gulf of Oman partially offset the export losses—a route often used to obscure cargo origins. These transfers surged in May, reaching a peak of 1.8 million barrels per day in early June.
According to IEA data, the drawdown in global visible crude inventories accelerated further in May, totaling 143 million barrels. Since the conflict began, the global daily drawdown rate has risen to 3.8 million barrels. Government oil inventories in OECD countries have cumulatively fallen by 163 million barrels, dropping to their lowest level since December 1990.
The ongoing depletion of global crude inventories has, against the backdrop of severe, months-long supply disruptions, helped curb excessive oil price spikes. Multiple factors have eased market tightness and offset some pressure from the supply gap, including weaker global demand, a decline in China's crude imports, a significant increase in US crude exports, and expanded pipeline capacity from Saudi Arabia and the United Arab Emirates.
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