International Energy Agency: Middle East Conflict Causing Largest Oil Supply Disruption in History

Investing.com - The International Energy Agency (IEA) stated in a report on Thursday that the Middle East war is causing the largest supply disruption in the history of the global oil market. The agency significantly downgraded its annual supply outlook after recently announcing the largest-ever release of oil reserves.

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The ongoing joint strikes by the U.S. and Israel against Iran for over a week have disrupted the oil market, causing recent sharp fluctuations in oil prices and reigniting concerns over inflation pressures worldwide. The latest Brent crude oil price is about $97 per barrel, having briefly surpassed $100 during Asian trading hours. Earlier this week, this global benchmark oil price surged to nearly $120 per barrel.

The main reason for the surge in oil prices is that tanker traffic through the Strait of Hormuz has effectively stopped. This vital waterway in southern Iran carries about 20% of the world’s oil supply. Few ships are willing to pass through the strait, as container companies are concerned about crew safety and find it difficult to obtain insurance for this route.

The IEA stated in its report that crude oil and petroleum product flows through the strait have decreased from about 20 million barrels per day at the end of February, before the outbreak of war, to a “trickle.”

Due to limited available capacity to bypass this narrow chokepoint, storage facilities have subsequently filled up. The IEA said major oil-producing countries in the Gulf region have had to cut total oil production by at least 10 million barrels per day.

The agency warned, “If shipping flows do not recover quickly, the supply loss will increase.”

Globally, oil supply is expected to decline by 8 million barrels per day in March, with reductions in the Middle East only partially offset by higher production from Russia, Kazakhstan, and non-OPEC+ oil producers.

For 2026, the IEA now expects global oil supply to increase by an average of 1.1 million barrels per day, mainly supported by non-OPEC+ countries. In February, this figure was projected to increase by 2.4 million barrels per day, with growth evenly distributed between OPEC+ and non-OPEC+ countries.

Due to the conflict causing widespread flight cancellations in the Middle East and large-scale disruptions to liquefied petroleum gas supplies, global oil demand in March and April is also expected to be about 1 million barrels per day lower than previously forecast.

The IEA warned, “Higher oil prices and a more uncertain global economic outlook pose further risks to the forecast.” The agency added that oil consumption in 2026 is expected to grow by 640,000 barrels per day year-on-year — 210,000 barrels per day less than last month’s forecast.

As this report was released, IEA member countries unanimously approved a record release of 400 million barrels of oil from emergency reserves on Wednesday to stabilize the turbulent oil market. Analysts said this release might only provide short-term support and added that only the resumption of shipping through the Strait of Hormuz can truly reassure anxious investors.

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