The International Energy Agency has cautioned that the Iran war has unsettled global oil markets, slashing demand forecasts and unleashing what it called the most severe supply shock on record, as disruptions ripple across the Middle East energy corridor.

In its latest Oil Market Report, the agency said global oil demand is now expected to shrink by 80,000 barrels per day in 2026, a sharp turnaround from last month’s projected growth of 730,000 bpd. It also noted that an anticipated 1.5 million barrels per day decline in the second quarter of 2026 would represent the steepest quarterly contraction since the COVID-19 pandemic.

The IEA said early signs of demand destruction are already evident in the Middle East and Asia-Pacific, where consumption of naphtha, LPG, and jet fuel has declined significantly. It linked the drop to higher prices, tightening supply conditions, and a slowdown in industrial production and aviation activity.

On the supply side, global oil output reportedly fell by 10.1 million barrels per day in March to 97 mbpd, as ongoing attacks on energy infrastructure and restrictions in the Strait of Hormuz disrupted exports.

OPEC+ production is said to have dropped by 9.4 mbpd, while non-OPEC supply also weakened, despite increases from the United States and Brazil.

The crisis has also affected refining operations, with global crude throughputs constrained by feedstock shortages and damage to infrastructure.

The IEA said refineries in the Middle East and Asia have reportedly reduced runs by about six million barrels per day, while global crude processing is now projected to decline by an average of one million barrels per day in 2026.

Prices have also climbed to historic levels, with Brent crude trading at around $100 per barrel, while physical crude briefly surged to $150 per barrel as refiners competed for alternative supplies.

Middle distillates in Asia also hit record highs above $290 per barrel, underscoring extreme tightness in product markets, according to the report.
Inventories reportedly fell sharply as well, with global observed stocks declining by 85 million barrels in March.

The IEA said supply routes through the Strait of Hormuz have been heavily disrupted, reducing flows from over 20 million barrels per day before the conflict to about 3.8 million barrels per day.