The International Energy Agency (IEA) warned on Tuesday that global demand for crude oil is expected to record its steepest quarterly decline since the COVID pandemic, as the ongoing conflict involving Iran disrupts supplies and drives up prices.
In its latest Oil Market Report (April 2026), the IEA said the second quarter of 2026 could see a demand drop of 1.5 million barrels per day (mb/d), the sharpest fall since pandemic-led lockdowns crushed fuel consumption worldwide.
The agency has revised its global oil demand forecast downward, now expecting a contraction of 80,000 barrels per day (kb/d) for the year. This marks a sharp downgrade of 730 kb/d compared to last month’s estimate.
The initial hit has been seen in the Middle East and Asia-Pacific regions, with reduced consumption of fuels such as naphtha, LPG, and jet fuel. However, the IEA warned that the impact is likely to spread further as supply shortages persist and prices remain elevated.
Supply shock hits historic levels
Global oil supply fell dramatically in March, dropping by 10.1 mb/d to 97 mb/d, the largest disruption on record. The decline has been driven by continued attacks on energy infrastructure in the Middle East and restrictions on tanker movement through the Strait of Hormuz.
Production from OPEC+ countries saw a steep fall of 9.4 mb/d, while non-OPEC+ output declined by 770 kb/d. Lower production in Qatar offset gains from countries such as Brazil and the United States.
Refining activity slows, margins surge
Refineries across key regions are struggling due to limited access to crude and damage to infrastructure. In April, refineries in the Middle East and parts of Asia reduced operations by around 6 mb/d, bringing total runs down to 77.2 mb/d.
The IEA now expects global refining activity to decline by an average of 1 mb/d in 2026. Despite this, refining margins have surged sharply, with middle distillate margins hitting record highs.
Inventories fall as supply routes choke
Global oil inventories dropped by 85 million barrels in March. Stocks outside the Middle East Gulf region saw a significant drawdown as flows through the Strait of Hormuz were severely restricted.
At the same time, crude storage in the Middle East increased due to limited export options. Floating storage rose by 100 million barrels, while onshore stocks grew by 20 million barrels. China also added around 40 million barrels to its reserves.
Prices surge amid supply crunch
Oil prices recorded their biggest-ever monthly jump in March following the supply shock. Spot crude prices surged well ahead of futures, as refiners scrambled to secure alternative supplies.
North Sea Dated crude was trading at around $130 per barrel at the time of the report, nearly $60 higher than levels before the conflict began.
Strait of Hormuz key to easing pressure
The IEA said the resumption of normal shipping through the Strait of Hormuz remains the most critical factor in stabilising global energy markets, easing prices and reducing pressure on the global economy.
The situation has become more complex following the United States’ announcement of a blockade targeting vessels linked to Iranian ports and coastal areas.
With supply chains disrupted, both consumers and refiners are increasingly relying on existing oil inventories to cushion the immediate impact of the crisis. However, the IEA warned that this is only a short-term solution if disruptions continue.