'The largest supply disruption in the history of the global oil market'

The war in the Middle East is causing “the largest supply disruption in the history of the global oil market,” the International Energy Agency said in its monthly oil market report Thursday.

Crude and oil product flows through the Strait of Hormuz have fallen from roughly 20 million barrels a day before the war to almost zero, the IEA said. With storage filling up and tankers unable or unwilling to load at port, Gulf producers have collectively cut at least 10 million barrels a day of total oil production, including at least 8 million barrels a day of crude and a further 2 million barrels a day of condensates and natural gas liquids. Major production reductions are concentrated in Iraq, Qatar, Kuwait, the UAE, and Saudi Arabia.

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Global oil supply is projected to fall by 8 million barrels a day in March, the IEA said. Production increases from countries outside OPEC+ — along with higher output from Kazakhstan and Russia within the group — are partially compensating for the Middle East losses, the IEA said.

The disruption has also shuttered more than 3 million barrels a day of refining capacity in the region due to attacks and the absence of viable export routes, with more than 4 million barrels a day of capacity at risk overall. Diesel and jet fuel markets face particular risk given limited flexibility elsewhere to increase output, the IEA said.

Oil prices have swung sharply since the U.S. and Israel launched joint air strikes on Iran late last month, prompting retaliatory strikes that have led to a widening war across the region. Brent futures briefly approached $120 a barrel before easing. At the time of the IEA report’s publication, Brent was trading at around $92 a barrel — up $20 for the month. Brent crossed back above $100 a barrel after attacks on two oil tankers in Iraqi waters and the evacuation of Oman’s main export terminal, according to Bloomberg.

In response to the disruptions, IEA member countries agreed Wednesday to release 400 million barrels from emergency reserves — the largest such coordinated release on record. The U.S. plans to supply 172 million barrels from the Strategic Petroleum Reserve as part of the effort, Energy Secretary Chris Wright said, though the full drawdown could take roughly four months, according to Bloomberg.

The IEA described the reserve release as a significant buffer but cautioned it remains a stop-gap in the absence of a swift resolution to the conflict. The agency said the resumption of tanker traffic through the Strait of Hormuz — dependent on adequate insurance and physical protection for shipping — is of “paramount importance” for the oil market.

The crisis is also weighing on demand. Flight cancellations across the Middle East and disruptions to LPG supplies are expected to reduce global oil demand by roughly 1 million barrels a day in March and April compared to prior estimates. The IEA cut its 2026 global oil consumption growth forecast by 210,000 barrels a day to 640,000 barrels a day.

Higher oil prices and the broader economic fallout from the war are adding to pressure on consumers globally. Inflation in the U.S. was cooling before the latest supply shock hit.

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