Global oil demand plummets by most since pandemic, says IEA

Summary: The IEA says the Iran war has triggered an unusually sharp collapse in global oil demand, with March demand down 3.4% and April expected to fall another 1.1% to 100.4 million barrels a day, the lowest level in more than three years. It says the combination of soaring prices, supply shortages and the near-total collapse of Middle East air travel has produced the steepest quarterly fall in demand outside Covid since before the global financial crisis.

The shock centres on the closure of the Strait of Hormuz, where shipping has effectively stalled since the war began at the end of February. Because roughly a fifth of global oil supply normally passes through the strait, the disruption has shut off about 13 million barrels a day of production, creating an extreme short-term deficit even as weaker demand offsets some of the loss.

The IEA warns that what began as a Middle East and Asia shock is likely to spread more broadly, with western countries also facing growing shortages if scarcity and high prices persist. It now expects oil demand to fall across 2026 as a whole, which would mark the first annual decline outside the pandemic since 2009.

To stabilise the market, the IEA has co-ordinated a record release of 400 million barrels from strategic reserves, alongside extra commercial sales. More than 205 million barrels have already been drawn from inventories outside the Gulf, though total global inventories have fallen by less because a large volume of oil is stranded in the Gulf and cannot reach buyers.

Even so, the global balance has tightened dramatically. The IEA says that if the war ends and Hormuz reopens fairly soon, the world could still finish 2026 with a small oil surplus, but it has slashed that forecast from 2.4 million barrels a day last month to less than 500,000 barrels a day now.