The International Energy Agency (IEA) has lowered its 2026 global oil demand forecast, warning that the Middle East war is creating severe disruptions across energy markets.
Rising fuel prices, restricted supplies and deteriorating economic conditions are weighing heavily on consumption. According to the agency, these pressures could trigger one of the sharpest declines in global oil demand in recent years.
IEA Forecasts Steeper Global Oil Demand Decline
The IEA expects worldwide oil consumption to fall by 2.5 million barrels per day (bpd) year over year during the fourth quarter of 2026.
For the full year, the agency now projects a decline of 2.6 million bpd. This represents a downward revision from last month’s forecast of a 2.5 million bpd contraction.
The ongoing conflict involving Iran and the resulting surge in energy prices are major factors behind the weaker outlook. Diesel consumption alone is expected to account for approximately 25% of the projected demand decline.
Looking ahead, the agency anticipates a partial recovery of 2 million bpd in 2027. However, global consumption would still remain 620,000 bpd, or 0.6%, below its 2025 level.
Global Oil Production Recovers, but Supply Risks Persist
Despite weakening demand, global oil production increased significantly in September.
Total output climbed by 2.5 million bpd to 102.3 million bpd, supported primarily by higher production from Gulf countries.
OPEC+ contributed an additional 2.1 million bpd, with Saudi Arabia accounting for much of the increase.
Nevertheless, the IEA expects global oil supply to decline by 5.8 million bpd throughout 2026. Its previous estimate anticipated a slightly smaller reduction of 5.7 million bpd.
Production could subsequently rebound by 7.7 million bpd in 2027, although the recovery remains vulnerable to further geopolitical disruptions.
The agency warned that renewed attacks in the Gulf could undermine the improvement in Middle Eastern oil exports recorded during September.
Meanwhile, Russian crude production rose by 65,000 bpd from August to September, reaching 8.43 million bpd. Despite the monthly increase, output remained 870,000 bpd below the level recorded one year earlier.
Oil Supply Deficit Continues to Support Energy Prices
The IEA estimates that global oil supply will fall short of demand by approximately 1.73 million bpd in 2026.
This represents a marginal improvement from the 1.74 million bpd deficit projected in its previous report. However, the market remains under substantial pressure.
Supply disruptions have already triggered significant increases in crude oil prices.
North Sea Dated crude surged by $26.17 per barrel during September, reaching $116.89. At the time of the report, prices had climbed to approximately $134, representing a 43% increase since the beginning of September.
Brent crude futures also advanced, gaining approximately 13% over the same period to trade near $107 per barrel.
The agency identified the September 11 attack on Saudi Arabia’s East-West Pipeline and sharply higher shipping costs as important contributors to the rally.
These developments have intensified concerns about the stability of international energy supplies.
Global Diesel Crisis Deepens as Fuel Shortages Spread
Diesel markets are experiencing particularly severe supply constraints, creating additional challenges for businesses and consumers.
Global diesel exports declined by approximately 700,000 bpd year over year in September.
Reduced shipments from Russia and the Middle East outweighed increases in exports from other producing regions.
As a result, wholesale diesel prices reached record highs of nearly $220 per barrel in both Europe and the United States during September.
These levels were almost twice the prevailing price of crude oil, highlighting the extraordinary pressure affecting refined fuel markets.
The IEA expects shortages of middle distillates, including diesel, to remain a major concern well into 2027.
Furthermore, the agency believes that Russia’s recent relaxation of diesel export restrictions will have only a limited impact on international supplies.
According to its assessment, the primary problem is insufficient Russian refining capacity rather than government export restrictions.
Consequently, easing trade controls alone is unlikely to resolve the broader diesel shortage.
Oil Inventories Fall as Middle East Conflict Threatens Further Turmoil
Global petroleum inventories declined by another 10 million barrels in September, according to the IEA.
This brought total stockpiles to approximately 509 million barrels below their pre-war levels.
The substantial reduction in inventories leaves international energy markets increasingly exposed to additional supply disruptions.
Moreover, the combination of geopolitical instability, constrained refining capacity and elevated transportation costs could prolong the current energy crisis.
The IEA cautioned that oil markets could face additional volatility over the coming months unless the conflicts in the Middle East move toward a resolution.
Although global production may recover in 2027, the agency does not anticipate a meaningful supply surplus before then.
Overall, the latest IEA oil demand forecast points to a challenging environment in which weaker consumption, persistent fuel shortages and geopolitical risks continue to shape global energy markets.
