Even projections of a recovery in the second half of the year now rest on shakier ground as a ceasefire between the U.S. and Iran collapses
Vessels passing through the Strait of Hormuz following a ceasefire deal reached between the U.S. and Iran. (Shady Alassar/Anadolu via Getty Images)
Global demand for oil is poised to fall by one million barrels per day this year as war in the Middle East strangles the flow of oil from the region, according to a new report, the first annual contraction in demand since the COVID-19 pandemic froze the global economy in 2020.
The monthly oil market report released Friday by the International Energy Agency said that the worst of the downturn is already in the rearview mirror: A 4.8 million barrel-a-day collapse in the second quarter is expected to give way to a smaller 1.7 million barrel-a-day decline in the third quarter, followed by a return to growth of 1.2 million barrels a day in the final three months of 2026. The agency expects demand to rebound by 2 million barrels a day in 2027.
A recovery in global oil demand from a low of 97.9 million barrels a day in May is underway, the IEA said, driven by the peak summer travel season and the release of pent-up demand following a partial reopening of the Strait of Hormuz. By October, the agency expects demand to be more than 8 million barrels a day above its May low point.
June brought a 4.1 million barrel-a-day jump in worldwide oil production to 98.8 million barrels a day once ships began moving through the Strait again, yet that still left output roughly 9.4 million barrels a day short of where it stood before the war began. The agency expects supply to fall by 3.7 million barrels a day for the full year before expanding by 7.5 million barrels a day in 2027.
But those projections now rest on shakier ground. Attacks between American and Iranian forces this week — the most serious flare-up since the two sides struck a 60-day truce last month — have brought commerce through the Strait of Hormuz, a chokepoint that carries roughly a fifth of world oil and gas supplies, nearly to a standstill again. And President Donald Trump has declared the ceasefire is "over," canceling the permit that had allowed Iranian crude to reach international buyers.
"Renewed exchanges of fire in the Gulf this week highlight the risks of not reaching a lasting peace agreement, which is a must for the normalisation in oil markets," the IEA wrote.
Speaking to CNBC, Toril Bosoni, who heads oil markets at the IEA, cautioned that any upturn would be neither "swift or linear" given what she called a "very uncertain and unstable" environment. On a more optimistic note, she said that stronger-than-expected output from non-Gulf producers combined with demand running below pre-war estimates meant a market surplus remained achievable before year-end and into 2027 — an outcome that "would provide welcome relief to the market and allow countries to rebuild their inventories."
At its most severe, the war — which prompted OPEC to cut its own 2026 demand growth forecast and which the IEA has characterized as the worst oil supply crisis on record — stripped more than 14 million barrels a day from global crude flows. Refining activity has been slower to recover than crude exports, with key Middle East export refineries yet to restart. With crude moving again but fuel shipments lagging, the gap between well-stocked oil markets and undersupplied refined-product markets sent refinery margins and product cracks to their highest levels in four years by early July, the IEA said.
Brent crude futures were trading around $75 to $76 a barrel on Friday, up from lows near $68 a barrel in early July but well below levels seen at the height of the conflict.
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