Global oil demand is set to fall in 2026 for the first time since the pandemic, the International Energy Agency (IEA) said July 10. War in the Middle East has choked the Strait of Hormuz for months, and the agency expects consumption to drop by roughly 1 million barrels a day this year, the first annual decline since 2020.
The forecast leans entirely on a ceasefire holding and the Strait staying open. Four days after the report landed, that ceasefire cracked: tankers burned, Washington reinstated its naval blockade, and Brent crude posted its biggest one-day jump in more than six years.
World Oil Demand Heads for Its First Yearly Drop Since 2020
The IEA’s July report trimmed its own estimate slightly, to a decline of 1.047 million barrels a day for 2026, from a 1.1 million bpd drop projected in June. Global demand fell to just 97.9 million barrels a day in May, its weakest point of the year, before recovery began taking hold.
The path back is not smooth. The agency expects a 4.8 million bpd annual contraction in the second quarter to ease to a 1.7 million bpd decline in the third, before demand actually grows again by 1.2 million bpd in the final three months of the year. By October, the IEA projects demand will be running more than 8 million bpd above its May low, pushing consumption above 2025 levels for the first time since February.
- 103.5 million bpd – average world oil demand the IEA now forecasts for 2026, down from 104.51 million bpd in 2025.
- 860,000 bpd – the supply shortfall the agency expects on average this year, narrower than the 920,000 bpd gap it projected a month earlier.
- 105.5 million bpd – where the IEA sees demand landing in 2027, a rebound of roughly 2 million bpd.
- 8 million bpd – how much demand is expected to climb between May and October, its steepest swing of the year.
Those numbers describe a market healing on paper. Whether it heals in practice depends on a single chokepoint.
Why One Waterway Still Sets the Global Price
The Strait of Hormuz links the Persian Gulf to the Gulf of Oman and the Arabian Sea. Before the war began, an estimated 120 to 140 vessels crossed it every day, roughly half of them oil tankers moving about 20 million barrels of crude. At the height of the fighting, that traffic collapsed to as few as two tankers a day.
At its most severe, in the war’s opening months, the crisis stripped more than 14 million barrels a day from global crude flows, the worst oil supply disruption the IEA has ever recorded. Supply has clawed back since. World oil output jumped 4.1 million bpd in June to 98.8 million bpd as Hormuz flows partially resumed, according to the IEA’s July Oil Market Report. Even so, global production remained 9.4 million bpd below where it stood before the war, and the agency expects full-year 2026 output to average 102.6 million bpd, a decline of 3.7 million bpd.
The Ceasefire Unravels, Tanker by Tanker
The war between the US, Israel and Iran began February 28. A memorandum of understanding, signed June 18, was supposed to let tankers move freely again. Brent crude was trading near $76 a barrel when the IEA published its report on July 10. It did not stay there.
- July 7: Iranian forces struck the Qatari-owned LNG tanker Al Rekayat and the Saudi-flagged supertanker Wedyan near Oman. Al Rekayat caught fire and its crew was evacuated.
- July 12: Iran’s Islamic Revolutionary Guard Corps (IRGC) Navy declared the Strait closed after firing on a vessel it said had strayed onto an unauthorized route. The ship’s crew, including 11 Indian nationals, abandoned ship; one sailor was later confirmed dead after his body was recovered by Oman’s navy.
- July 13 to 14: Iran struck three more tankers, including the Norwegian-owned Stolt Magnesium and two UAE-owned vessels. US Central Command (CENTCOM) launched a third consecutive night of strikes on Iranian military targets, and Brent crude soared 9.59% to settle at $83.30 a barrel, its biggest one-day percentage gain in more than six years, while US benchmark WTI jumped about 9.4% to $78.14.
- July 14 to 15: Washington revoked the license permitting Iranian oil exports and reimposed its naval blockade of Iranian ports. CENTCOM confirmed the blockade was back in force.
The UAE’s Defense Ministry said Iranian missiles killed one crew member aboard its tankers. CENTCOM wrote on X that the strikes would keep “imposing a heavy cost on Iranian forces” and would work to “degrade their ability to attack innocent civilians and commercial shipping in the Strait of Hormuz.”
Traders had already priced in some of this risk. Even before the latest strikes, bets on oil settling near $60 a barrel assumed the June truce was a framework, not a finished deal.
How Far Apart Are IEA, OPEC and EIA on Oil Demand?
The three major forecasters read the same war differently. IEA sees demand shrinking about 1 million bpd in 2026 to near 103.5 million bpd. OPEC still expects demand to grow, by 780,000 bpd, to almost 106 million bpd. The U.S. Energy Information Administration (EIA) sits closest to IEA, projecting roughly a 1.2 million bpd decline.
The Organisation of the Petroleum Exporting Countries (OPEC) cut its 2026 demand growth forecast on July 13 for a third consecutive month, down 190,000 bpd to 780,000 bpd. Earlier this year, before the war escalated, the group had penciled in growth of about 970,000 bpd.
“The global economic growth dynamic in the first half of 2026 has remained broadly resilient,” OPEC wrote in its July report, adding that “potential moderations in geopolitical tensions may provide some upside for global growth in the second half of 2026 if energy markets and trade flows stabilise further.”
| Forecaster | 2026 Demand | Year-on-Year Change | 2027 Demand |
|---|---|---|---|
| IEA | About 103.5 million bpd | Down about 1.0 million bpd | About 105.5 million bpd (+2.0 million bpd) |
| OPEC | About 105.9 million bpd | Up 780,000 bpd | About 107.9 million bpd (+1.7 million bpd) |
| EIA | About 102.9 million bpd | Down about 1.2 million bpd | About 104.8 million bpd (+2.0 million bpd) |
The gap between the bearish and bullish camps has run as wide as 2.8 to 3.2 million barrels a day, according to the International Energy Forum’s comparison of the three monthly reports. IEA and EIA read the petrochemical and aviation sectors as still deeply damaged, while OPEC leans on a faster shipping rebound once the Strait fully reopens. Every forecaster converges much closer for 2027, which suggests the argument is about timing, not direction.
Refiners Can’t Keep Up With the Crude Rebound
Crude supply has recovered faster than refined fuel. Gulf exports of refined products and LPG in June remained less than half their pre-war levels, even as crude flows climbed back to nearly three-quarters of February’s rate, the IEA reported. Refining margins and cracks jumped to four-year highs by early July as a result.
Jet fuel worries have eased, but diesel and gasoline markets have tightened instead. Elsewhere, Ukrainian strikes on Russian refineries have squeezed product markets further, the IEA noted, layering a second refining crisis on top of the Gulf disruption.
Governments have leaned on more than tanker rerouting to close the gap. Among the tools deployed since February:
- Saudi Arabia and the UAE redirected crude exports to terminals loading outside the Strait.
- Consuming countries drew down commercial and strategic reserves, including a drop in OECD government stockpiles to their lowest level since December 1990.
- Some governments imposed price controls, rationing and even four-day work weeks to curb fuel use.
- Producers outside the Middle East, led by the Americas, pushed output and exports to record levels.
Consumers are feeling some relief at the pump regardless. The EIA’s July outlook lowered its price forecasts after the Hormuz reopening, projecting US retail gasoline will average near $3.60 a gallon in the second half of 2026. Quarterly, that is a drop from more than $4.20 a gallon in the second quarter to $3.80 in the third.
The 2027 Surplus Is Still Just a Bet
Assuming Hormuz traffic keeps normalizing, the IEA projects world oil supply will expand by 7.5 million bpd in 2027, well ahead of the roughly 2 million bpd rise it expects in demand. That gap is what would finally tip the market into the kind of surplus that lets countries rebuild inventories drawn down since February.
Toril Bosoni, who heads oil markets analysis at the IEA, told CNBC the recovery would not be “swift or linear” given what she called a “very uncertain and unstable situation.”
But with significant growth from other producers, and with demand levels lower than we were expecting before the war, we could return to a surplus through the end of the year and into next year.
That surplus, Bosoni said, “would provide welcome relief to the market and allow countries to rebuild their inventories.” The U.S. Energy Information Administration is similarly cautious. It expects most shut-in production to return online only by the first quarter of 2027, and it forecasts a swing from steep inventory draws to milder builds only once that supply fully materializes.
The IEA published its recovery forecast July 10, days before the worst week of tanker strikes since the war began. By July 15, the blockade it warned about was already back in force.
Frequently Asked Questions
What Is the Strait of Hormuz?
The Strait of Hormuz is the narrow shipping channel connecting the Persian Gulf to the Gulf of Oman and the Arabian Sea, historically carrying roughly a fifth of the world’s seaborne oil and LNG trade. It is the single busiest chokepoint in global energy shipping, which is why a handful of tanker strikes can move Brent crude by nearly 10% in a single day.
Why Is Oil Demand Falling Instead of Just Slowing?
The decline reflects genuine demand destruction. Jet fuel prices nearly tripled after Middle Eastern export routes were cut, and the IEA has tracked petrochemical and aviation activity running well below normal levels as higher prices and shortages forced consumers and industry to cut back rather than simply grow more slowly.
Why Do China and India Matter So Much to These Forecasts?
OPEC’s latest downgrade was driven mainly by China and India, whose 2026 consumption forecasts were cut by 110,000 bpd and 60,000 bpd respectively as high prices and softer growth hit the world’s two largest oil-importing nations.
Are US Gasoline Prices Actually Coming Down?
Yes, according to the EIA. Average US retail gasoline prices, which peaked near $4.48 a gallon in May, are forecast to average about $3.60 a gallon in the second half of 2026 as more crude reaches the market, before easing further in 2027.
What Happens to the Market if the Strait Closes Again?
Inventories would likely resume falling sharply. The EIA already estimates global oil inventories dropped by 5.1 million bpd in the second quarter and projects a further 2.2 million bpd draw in the third quarter before builds resume, a cushion that a renewed closure would strip away quickly.
