Oil markets faces biggest supply shock in history, says IEA

The global oil market is currently experiencing the most significant supply disruption in its history due to the conflict in the Middle East, the International Energy Agency said on Thursday. 

The agency said in the absence of a rapid resumption of shipping flows through the Strait of Hormuz, disruptions to oil and gas supply are expected to increase. 

Global oil supply is expected to drop by 8 million barrels per day (bpd) in March, according to IEA’s March Oil Market Report. 

Oil supply shock and production curtailments

This decline is driven by cuts in the Middle East, although this reduction is partially balanced by increased production from non-OPEC+ countries, specifically Kazakhstan and Russia, as they recover from earlier disruptions this year.

“While the extent of losses will depend on the duration of the conflict and-disruptions to flows, we estimate global oil supply to rise by 1.1 mb/d in 2026 on average, with non-OPEC+ producers accounting for the entire increase.”

The disruption of nearly 20 million bpd in crude and product exports is straining global producers and consumers.

This is due to limited alternatives for bypassing the world's most vital oil transit chokepoint.

As few ships are currently available or prepared to load goods at the port, and domestic storage capacity is nearing its limit, regional producers are either scaling back or halting production, the Paris-based energy watchdog said in its report. 

Given the rapidly changing and often unclear on-the-ground situation, we currently estimate a minimum crude production curtailment of 8 million bpd, supplemented by an additional 2 million bpd shutdown of condensates and natural gas liquids (NGLs), the agency said.

Major supply reductions are seen in Iraq, Qatar, Kuwait, the UAE and Saudi Arabia.

Product market vulnerability and demand revision

The conflict is severely disrupting global product markets as well, causing export flows through the Strait to nearly halt. 

In 2025, Gulf producers exported 3.3 million bpd of refined products and 1.5 million bpd of liquefied petroleum gas, according to IEA data. 

However, more than 3 million bpd of the region's refining capacity has been forced to shut down due to attacks and the absence of viable export routes.

Furthermore, refining operations in other areas will face increasing constraints due to limited feedstock availability.

“Diesel and jet fuel markets look to be particularly vulnerable to an extended loss of Middle East production and exports, given limited flexibility elsewhere to increase output,” IEA said. 

Global oil demand is now projected to decrease by approximately 1 million bpd in both March and April compared to earlier forecasts, the IEA added. 

This reduction is primarily driven by extensive flight cancellations across the Middle East and significant disruptions to LPG supplies. 

Consequently, the outlook for global oil consumption has been revised downwards by the IEA; it is now expected to grow by 640,000 bpd year-on-year in 2026, which is a drop of 210,000 bpd from the previous month's estimate. 

The forecast remains vulnerable to further risks stemming from higher oil prices and a more uncertain global economic climate.

Emergency reserves and crude price surge

Consumer nations currently hold substantial oil reserves to mitigate short-term supply disruptions. 

Global observed inventories of crude oil and petroleum products are estimated at over 8.2 billion barrels, the highest level recorded since February 2021, according to IEA data. 

Approximately half of this total is stored within OECD countries.

This includes 1.25 billion barrels set aside by governments for emergency use, along with an additional 600 million barrels of industry stocks that governments mandate companies to maintain.

To mitigate the negative economic impact of supply disruptions, IEA member countries agreed on Wednesday to release an unprecedented 400 million barrels of oil from their emergency reserves onto the market.

However, crude oil prices shrugged off the news and surged on Thursday morning with Brent breaching the $100-per-barrel mark once again for a brief period. 

“The co-ordinated emergency stock release provides a significant and welcome buffer, but in the absence of a swift resolution to the conflict, it remains a stop-gap measure,” IEA said in its report on Thursday. 

“Adequate insurance mechanisms and physical protection for shipping are key to the resumption of flows, which is of paramount importance for the oil market.”

The post Oil markets faces biggest supply shock in history, says IEA appeared first on Invezz