The International Energy Agency (IEA) has indicated that global oil demand is set to contract this year for the first time since the COVID-19 pandemic in 2020, as price surges triggered by the Middle East conflict erase consumption. In its latest monthly report, the IEA stated that global oil demand for 2026 is now projected to fall by 80,000 barrels per day, a significant revision from a previous forecast of an increase of 640,000 barrels per day. The report emphasized that the Middle East war has fundamentally upended the global oil consumption outlook. Signs of demand destruction initially emerged in the Middle East and Asia-Pacific regions, and this trend is expected to widen as supply shortages persist and prices climb.
In contrast, the Organization of the Petroleum Exporting Countries (OPEC) maintains a more optimistic view. In its Monthly Oil Market Report released on April 13, OPEC lowered its global oil demand forecast for the second quarter of 2026 by 500,000 barrels per day to 105.07 million barrels per day, citing the impact of the current Middle East situation. OPEC described this as a "slight, temporary softness" in oil demand growth and kept its full-year 2026 oil demand growth forecast unchanged, projecting a global increase of 1.38 million barrels per day.
The near-total closure of the Strait of Hormuz due to the Middle East conflict, along with damage to multiple energy infrastructure sites in the Gulf region, has triggered what the IEA terms the "largest oil supply disruption in history." Last month, the IEA compared the shock to the combined effect of the two major oil crises of the 1970s and the natural gas crisis following the 2022 Russia-Ukraine conflict. The IEA reported that the flow of oil and refined products through the Strait of Hormuz has dropped to just 3.8 million barrels per day, compared to approximately 20 million barrels per day before the conflict—representing about 20% of global supply. The agency added that global oil supply plummeted by 10.1 million barrels per day last month, a decline of about 9%, as Saudi Arabia, Iraq, the UAE, and Kuwait were forced to halt production.
Simultaneously, the IEA pointed out that despite an unprecedented spike in oil futures prices in March, they remain significantly below record highs and spot prices. This disconnect between futures and physical markets is becoming "increasingly severe." IEA Executive Director Fatih Birol stated on Monday that oil futures have not yet reflected the severity of the crisis but will likely do so soon. Although the IEA's base scenario assumes that oil transit in the Middle East will largely resume before mid-year, the report also outlines an alternative scenario where disruptions persist for a longer duration. The IEA warned, "Under such circumstances, global energy markets and national economies must prepare for potentially significant shocks in the coming months."
Tensions Persist in Strait of Hormuz, Upside Risks to Oil Prices Remain On Tuesday, informed sources revealed that the United States and Iran are considering further negotiations to extend a two-week truce, with new talks aimed before the ceasefire announced on April 7 expires next week. A statement from the White House on Monday indicated that "the right and appropriate parties have contacted us this morning, expressing a desire for an agreement." This development suggests that diplomatic efforts continue after initial weekend talks failed to yield a deal. According to the latest information, US and Iranian delegations are scheduled to meet later this week in Islamabad, Pakistan. Although this news prompted a pullback in international oil prices on Tuesday, the strategic contest between the US and Iran over control of the Strait of Hormuz continues.
Following the inconclusive talks over the weekend, the US began blocking all maritime traffic to and from Iranian ports effective 10:00 AM ET on April 13. Media reports on April 13, citing a senior US official, indicated that over 15 US naval vessels have been deployed to support the operation since the blockade commenced. Iran has warned that if its shipping hubs are threatened, it will target various ports along the Persian Gulf, heightening risks of a broader conflict. A spokesperson for Iran's Armed Forces Central Headquarters stated that Iran will firmly implement a "permanent mechanism for controlling the Strait of Hormuz" in response to threats, adding that if the security of Iranian ports in the Persian Gulf and Sea of Oman is jeopardized, no port in those waters would be safe.
For the global energy market, already facing severe supply disruptions, the only short-term relief hinges on the reopening of the Strait of Hormuz. Several market analysts warn that any escalation leading to prolonged supply gaps could push international oil prices even higher. Jorge Montepeque, Managing Director at Onyx Capital Group, cautioned that if the US proceeds with a maritime blockade of the Strait of Hormuz, oil prices could surge to $150 per barrel. He suggested that such a blockade could transform a regional conflict into a global one, potentially reducing daily oil supply by up to 12 million barrels.
Goldman Sachs noted that if the Strait of Hormuz remains closed for another month, the average Brent crude price for 2026 could exceed $100 per barrel. Should the closure extend further and damage regional production capacity, price forecasts would be revised higher, with Q3 Brent averages potentially reaching $120 per barrel and Q4 around $115. A senior analyst from the bank indicated that even if the Strait gradually reopens, energy infrastructure and production capacity damaged by conflict in Gulf states would require months to restore, making a return to pre-conflict price levels of $60-$70 per barrel unlikely. Additionally, given the unpredictability of US policy and Iran's control over the strait, a "war premium" is likely to persist for an extended period.
JPMorgan added that if shipping through the Strait of Hormuz is not fully restored until July, international oil prices could spike again, retesting the peak of nearly $120 per barrel seen during the current US-Iran tensions.
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