The International Energy Agency (IEA) has sharply cut its forecasts for global oil supply and demand growth, saying both are expected to fall from last year’s levels as the United States-Israel war on Iran disrupts oil flows and weighs on the global economy.
According to its report published on Tuesday, the IEA sees global oil demand falling by 80,000 barrels per day (bpd) this year, compared with a projected year-on-year rise of 640,000 bpd in its previous monthly report.
The forecast was released after the International Monetary Fund, World Bank and IEA urged countries on Monday to avoid hoarding energy supplies and imposing export controls that could worsen the shock.
IEA chief Fatih Birol on Monday told reporters that several countries were holding onto stocks and imposing export restrictions, and appealed to all countries to let energy stocks flow to the markets. He did not name the countries.
“Demand destruction will spread as scarcity and higher prices persist,” the IEA report said on Tuesday, adding that the deepest cuts in oil consumption have come from the Middle East and Asia Pacific so far, for naphtha, LPG and jet fuel in particular.
The Paris-based watchdog said a projected 1.5 million bpd drop in demand in the second quarter of this year would mark the deepest contraction since the COVID-19 pandemic.
On Monday, the Organization of the Petroleum Exporting Countries (OPEC) lowered its prediction for world oil demand in the second quarter, but kept its full-year outlook unchanged.
Hormuz disruptions
Attacks on energy infrastructure in the Middle East and Iran’s closure of the Strait of Hormuz have led to the largest oil supply disruption in history, the IEA said, with 10.1 million bpd lost in March.
Iran brought traffic through the strait – a key route for global energy shipments – to a near-total halt in response to US-Israel attacks on its territory since February 28.
The Iranian de facto control over the chokepoint sent gas and petrol prices skyrocketing around the world.
Now, Washington aims to take control of the strait from Tehran by making it impossible for Iranian tankers, which have continued to pass each day, to transit.
For this, US President Donald Trump announced a blockade on Iranian ports on Sunday, after weekend peace talks in Pakistan’s capital, Islamabad, between the US and Iran failed to reach a deal.
The IEA report said the US blockade has further clouded the outlook for global energy security and the supply of a vast array of goods that rely on petroleum.
Oil demand could plunge even further if the strait remains closed, the IEA said.
“In this case, energy markets and economies around the world need to brace for significant disruptions in the months to come,” it warned.
“Resuming flows through the Strait of Hormuz remains the single most important variable in easing the pressure on energy supplies, prices and the global economy,” the IEA added.
Russia’s gains
It also noted that a chief beneficiary of the disruptions has been Russia. Thanks to the surge in prices, Moscow’s revenues from crude oil and refined products rose in March, rebounding from February when they fell to their lowest level since the start of the all-out war on Ukraine in 2022.
Russia’s commodity revenues are a vital part of the state budget and are needed to support rising military spending.
The IEA said Russia’s crude oil exports rose by 270,000 bpd last month from February to 4.6 million bpd, mostly driven by higher seaborne shipments as the Druzhba pipeline remained offline.
Flows via the Druzhba pipeline to Hungary and Slovakia across Ukrainian territory have remained shut following the attacks on the pipeline infrastructure at the end of January.
