IEA Sees First Annual Oil Demand Drop Since 2020

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IEA Sees First Annual Demand Contraction Since Covid Era

Global oil demand is projected to decline this year for the first time since 2020, according to the International Energy Agency’s latest monthly oil market report released Friday. The agency now expects worldwide consumption to be lower by 1 million barrels per day compared with last year, a reversal from the growth trends seen since the depths of the Covid-19 crisis.

The IEA described the demand pullback as being “highly skewed in both product and regional terms,” following the disruption of crude and product flows from the Middle East after the closure of the Strait of Hormuz, a critical chokepoint for exports out of the Persian Gulf.

Strait of Hormuz Disruptions and Conflict Risks

The report highlighted that the war between Israel and Iran has interrupted production and export activity across the region, particularly through the Strait of Hormuz. While the agency said a recovery is underway, it emphasized that the outlook remains vulnerable to renewed hostilities.

Its baseline forecast assumes that a ceasefire remains in place and that tanker traffic through the Strait gradually returns, allowing affected producers and refiners to bring fields and facilities back online and resume shipments. That scenario has come under pressure as the U.S. and Iran have exchanged fire and several vessels have been attacked, leading to another sharp slowdown in traffic through the waterway.

The IEA cautioned: “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. 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.”

Market Reaction and Price Dynamics

Oil prices were little changed on Friday, but remained on course for solid weekly gains. Traders continued to weigh the escalation in U.S.-Iran tensions against expectations that the conflict will remain contained and not lead to severe, prolonged disruptions in Persian Gulf crude supplies.

IEA Cuts Russian Supply Outlook

Alongside its demand downgrade, the IEA also reduced its projections for Russian oil output. The agency linked the weaker outlook to Ukraine’s intensified drone campaign targeting Russia’s energy sector, including oil refineries and associated facilities, which Kyiv has stepped up in recent months.

“Continued strikes on refineries, storage facilities and transport infrastructure underpin a weaker production outlook and we have accordingly cut our Russian supply outlook for this year and next, by 85,000 barrels per day and 150,000 bpd respectively, to average 8.8 million bpd over the forecast period,” the IEA said.

Russia, described in the report as the world’s third-largest oil producer, is now expected to produce 8.9 million barrels per day this year and 8.8 million barrels per day in 2027, compared with a prior level of 9.2 million barrels per day in 2025.

Russian Supply Forecast Details