By Giulia Petroni
The Gulf oil supply shock is set to drag global oil demand sharply lower before flows through the Strait of Hormuz gradually normalize, with supply expected to rebound to 8 million barrels a day in 2027, the International Energy Agency said.
While the U.S.-Iran interim deal set to be signed this week marks the most significant breakthrough in negotiations since the start of the war, a full recovery of flows through the vital Strait of Hormuz waterway is expected to take months, according to the Paris-based energy watchdog.
The group, which represents Western nations and their allies, now expects global oil demand to fall by 1.1 million barrels a day this year-from its previous forecast of a 420,000-barrel-a-day decline-on the back of high prices and severe supply disruptions.
Next year, demand growth is forecast to rebound to 2 million barrels a day, as trade flows normalize, oil prices fall and the economic outlook improves.
The U.S. and Iran reached a preliminary agreement to end hostilities, with a formal signing expected on Friday. While the full terms have not been disclosed, The Wall Street Journal reported that the deal includes waivers on U.S. sanctions targeting Iranian oil sales and the lifting of U.S. and Iranian blockades in the Strait of Hormuz.
Brent crude-the international oil benchmark-dropped below $80 a barrel on Wednesday, while West Texas Intermediate futures were down to $75 a barrel. Both benchmarks settled more than 5% lower in the previous session, marking the lowest closes since early March.
"While details of the deal have yet to be clarified and several issues remain outstanding, it is an encouraging step forward," the IEA said in its latest monthly report on Wednesday. "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."
The U.S.-Israeli war on Iran that began on Feb. 28 paralyzed shipping through the strait, which normally handles around one-fifth of the world's oil and natural-gas flows. Market watchers now say a full recovery is likely to take months as shippers face logistical and security challenges-from vessel repositioning and port scheduling to insurance coverage.
The IEA expects global supply to fall by 3.9 million barrels a day this year as roughly one-fifth of the world's oil supply is trapped in the Persian Gulf, before rebounding to 8 million barrels a day next year.
In May, global output was 13.6 million barrels a day below prewar levels. Oil exports from Gulf producers fell by 1.1 million barrels a day and were nearly 15 million barrels a day below February levels.
Iranian exports were hit particularly hard by the U.S. blockade, dropping by 1.4 million barrels a day to just 230,000 barrels a day. Some of the losses were offset by a rise in ship-to-ship transfers in the Gulf of Oman, a trade route often used to obscure cargo origins, with volumes climbing sharply in May and reaching as much as 1.8 million barrels a day by early June.
The decline in global observed inventories accelerated in May, to 143 million barrels, raising the average pace of stock draws since the start of the conflict to 3.8 million barrels a day. Meanwhile, OECD government inventories fell by 163 million barrels to their lowest level since December 1990, the IEA said.
The drawdown in global stockpiles has helped cap oil price gains despite months of severe supply disruptions. Softer global demand, weaker crude imports by China, stronger U.S. exports, and increased use of pipeline routes from Saudi Arabia and the U.A.E. have all helped ease pressure on the market and offset part of the supply shortfall.
Write to Giulia Petroni at giulia.petroni@wsj.com
(END) Dow Jones Newswires
June 17, 2026 04:08 ET (08:08 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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