IEA warns oil demand may have to fall further as Iran war drags

The entrance to the International Energy Agency (IEA) headquarters in Paris on March 11, 2026. Photo by Ludovic MARIN / AFP via Getty Images

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The International Energy Agency cut its forecast for oil demand and said consumption may have to decline further in the coming months as the Iran war drags on and consumers are forced to adjust to lower supply.

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The Paris-based agency deepened its estimates for this year’s decline in global oil demand by 940,000 barrels a day to 2.5 million barrels a day — the biggest loss in annual average terms since the 2020 COVID-19 pandemic shuttered vast swathes of the world economy. The return of a supply surplus will now be delayed until 2027, it said.

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“Global oil inventories have been drawing at record rates,” the energy adviser to major economies said in a monthly report. “With supplies still constrained, and commercial inventory buffers rapidly depleting, further demand reductions may be required in the coming months to close the gap.”

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The agency said the hit to 2026 oil demand looks set to be on a comparable scale to the four largest shocks of the last 60 years, with the biggest impact falling on middle distillates like diesel, and feedstocks for petrochemicals plants in Asia.

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Brent crude surged past US$100 a barrel this week for the first time since July as hostilities between Iran and the U.S. erupted again. It was trading near US$107 barrel on Friday as fighting between Yemen-based Houthi militants and Saudi-backed forces intensified, adding to concerns about shipping oil through the southern Red Sea.

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Still, the market is heading for a deeper supply shortfall than previously estimated because the war is having an even bigger impact on the flow of oil than on consumption, according to the IEA.

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The agency’s latest data indicate an average global oil deficit of about 1.7 million barrels a day this year, compared with a shortfall of 1.3 million a day in last month’s report. It shows stockpiles continuing to draw in the fourth quarter, instead of a marginal increase for the same period that it previously forecast. The agency’s August report said the market would return to surplus towards the end of this year.

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The agency — which has characterized the crisis as a record supply disruption — lowered projections for global supply by 1.3 million barrels a day, to an annual loss of 5.7 million a day, and said it had pushed back expectations for a recovery into next year.

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As a result, world supplies are on track to fall short of demand this year by about 1.75 million barrels a day, data from the report indicated. Between February and August, inventories declined at even more stark clip of 2.8 million barrels a day, the IEA said.

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