IEA Projects First Annual Oil Demand Drop Since 2020 Amid Mideast Conflict

Global oil demand is on track to decline for the first time since the COVID-19 pandemic, contracting by 1 million barrels a day (bpd) in the current year, the International Energy Agency (IEA) announced Friday. In its latest monthly oil market report, the agency attributed the forecast to major production and export disruptions caused by the conflict in the Middle East.

Strait of Hormuz Disruptions

The IEA noted the projected contraction is "highly skewed in both product and regional terms," stemming directly from the closure of the Strait of Hormuz. The vital shipping lane has seen traffic slow dramatically amid attacks on vessels, severely impacting exports from the Persian Gulf.

The agency's forecast is conditional, hinging on the assumption that tanker flows through the strait will gradually recover. The IEA warned that renewed fighting could further cloud the outlook, stating that a lasting peace agreement is "a must for the normalization in oil markets."

Russian Supply Outlook Cut

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Separately, the IEA also lowered its outlook for Russian oil production, citing Ukraine's intensified drone campaign against the country's energy infrastructure. The agency stated that continued strikes on refineries and storage facilities prompted the revision.

The IEA cut its Russian supply outlook by 85,000 bpd for this year and 150,000 bpd for next year. It now expects Russian production to average 8.8 million bpd over the forecast period, a significant downgrade for the world's third-largest producer.

Market Impact

Oil prices remained relatively stable following the report but were on track for weekly gains as investors weighed the IEA's demand warning against the ongoing geopolitical risks. The report highlights that while the market may shift to a surplus later in the year, the balance remains fragile and highly dependent on a de-escalation of regional conflicts.