The International Energy Agency on Friday said global oil demand is expected to fall for the first time since 2020, as the Iran war disrupted production and exports across the Middle East.

In its latest Oil Market Report, the agency projected that global oil demand will decline by 1 million barrels per day year-on-year in 2026, marking the first annual contraction since the peak of the COVID-19 pandemic in 2020.

The IEA said the downturn is heavily concentrated across specific petroleum products and regions, attributing it largely to the closure of the Strait of Hormuz, a critical oil and gas shipping route, which has disrupted exports from the Persian Gulf.

The researchers said a recovery is already underway but cautioned that any renewed escalation in the Iran conflict could further disrupt oil markets and worsen the outlook.

The IEA’s forecast is based on the assumption that a ceasefire will hold and that the Strait of Hormuz will gradually reopen.

However, the agency warned that this scenario is becoming increasingly uncertain as tensions between the United States and Iran intensified this week. Several ships were reportedly attacked, while vessel traffic through the strategic waterway has once again slowed significantly.

“While the global oil market balance looks set to swing back to surplus towards the end of the year, the forecast hinges on the assumption that tanker flows through the Strait will gradually recover, allowing producers to restart fields and refiners in the Middle East and elsewhere to resume product shipments,” the IEA wrote.

“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 normalization in oil markets.”

Oil prices edged lower on Friday, with global benchmark Brent crude futures for September delivery slipping to $76.25 per barrel, while U.S. West Texas Intermediate crude futures remained largely unchanged at $72.09 per barrel.