Escalating conflict in the Middle East threatens to cause the largest supply disruption in the history of the oil market, the International Energy Agency (IEA) said Thursday adding that about 7.9 million bpd of crude and 9.9 million bpd of total liquids could be shut in across Gulf producers in March.
The war has severely disrupted energy shipments through the Strait of Hormuz, one of the world's most critical oil transit routes. Flows of crude and refined products through the waterway have plunged from around 20 million bpd before the conflict to only "a trickle," the agency said.
With limited capacity available to bypass the chokepoint and storage facilities rapidly filling up, Gulf producers have cut total oil output by at least 10 million bpd.
The agency warned that supply losses could deepen further if tanker traffic through the strait does not resume quickly.
In the absence of a swift recovery in transits through the Strait of Hormuz, and even with some flexibility from alternative export routes, about 7.9 million bpd of crude and 9.9 million bpd of total liquids could be shut in across Gulf producers in March, the agency estimates.
"Global oil supply is projected to plunge by about 8 million bpd in March," the IEA said, noting that production curtailments in the Middle East are expected to be partly offset by higher output from non-OPEC+ producers, including Kazakhstan and Russia following disruptions earlier this year.
While the scale of supply losses will ultimately depend on the duration of the conflict and the extent of disruptions to shipping flows, the agency still expects global supply to expand over the longer term.
The conflict is also severely disrupting global refined product markets, with export flows through the Strait of Hormuz nearly at a standstill.
Gulf producers exported about 3.3 million bpd of refined products and 1.5 million bpd of LPG in 2025, according to the International Energy Agency. However, more than 3 million bpd of refining capacity in the region has already shut down due to attacks and the lack of viable export routes.
Refineries in other regions are also expected to face constraints as feedstock availability tightens, the agency said.
To mitigate the impact of the disruption, IEA member countries unanimously agreed on March 11 to release 400 million barrels of oil from their emergency reserves to the market.
- Supply rose by 380,000 barrels in February
Global oil supply rose by 380,000 barrels per day (bpd) in February to 106.87 million bpd.
During February, OPEC crude production rose by around 340,000 bpd to 29.63 million bpd, while the group's natural gas liquids output increased by about 40,000 bpd to 5.75 million bpd, lifting total OPEC oil supply to 35.37 million bpd.
Meanwhile, oil production in non-OPEC countries edged up by about 10,000 bpd to roughly 71.5 million bpd, the report said.
The agency also noted that global observed oil stocks reached 8.21 billion barrels in January, the highest level since February 2021.
Of the total, OECD countries accounted for around 50%, while Chinese crude stocks represented 15%, oil in transit or on water about 25%, and the remainder was held in other non-OECD countries.
- Oil demand outlook revised lower
The Agency also revised down its outlook for global oil demand growth in 2026, citing seasonal weakness and a modest economic backdrop.
The IEA estimates that global oil supply will increase by an average of 1.1 million bpd in 2026, with non-OPEC+ producers accounting for the entire growth.
Global oil demand is now expected to increase by about 650,000 bpd year-on-year in 2026, down 210,000 bpd from last month’s forecast, the agency said.
In its previous report, the IEA had projected demand growth of about 849,000 bpd, with total consumption estimated at 104.87 million bpd. Global oil demand is now expected to reach around 104.77 million bpd, according to the updated outlook.
Demand growth will continue to be driven largely by emerging economies. Non-OECD oil demand is forecast to rise by 680,000 bpd to 58.92 million bpd, while OECD demand is expected to edge down by about 40,000 bpd to 45.84 million bpd, the agency said.
Widespread flight cancellations across the Middle East and large-scale disruptions to LPG supplies are expected to reduce global oil demand by around 1 million bpd in March and April compared with previous estimates.
Higher oil prices and a more fragile outlook for the global economy pose additional downside risks to demand, the report added.
By Duygu Alhan
Anadolu Agency
energy@aa.com.tr