Global oil supply is expected to fall short of demand this year, as the war in Iran severely disrupts Middle East production, Reuters reported citing the International Energy Agency’s (IEA) monthly oil market report. This comes as global supply in 2026 is projected to fall short of demand by 1.78 million barrels per day (b/d), overturning last month’s forecast of a 410,000 b/d surplus and December’s estimate of nearly 4 million b/d in excess supply.

The war involving the US and Israel against Iran, the resulting destruction of oil infrastructure across Iran and its Gulf neighbors, and the near-total shutdown of the Strait of Hormuz have triggered the most severe oil supply crisis in history, driving prices to unprecedented heights, according to Reuters.

With Hormuz tanker traffic still restricted, cumulative supply ​losses from Middle East Gulf producers already exceed 1 billion barrels with more than 14 million barrels per ⁠day (b/d) of oil now shut in, an unprecedented supply shock,” said the agency, which advises industrialized countries.

“Our latest supply and demand estimates imply that the market will remain severely undersupplied through the end of 3Q26, even assuming the conflict ends by early June,” the IEA said, adding that the second-quarter deficit will be as stark as ​6 million b/d.

The IEA’s base-case outlook anticipates a gradual reopening of traffic through the Strait beginning in the third quarter, which it said could restore the market to a “modest surplus” by year’s end and allow depleted inventories to start rebuilding.

The Paris-based agency reported that supply disruptions drove a 246-million-barrel decline in global oil inventories during March and April 2026, a drawdown that could heighten price volatility as the peak summer demand season approaches.

In March, the 32-member IEA coordinated an unprecedented release of 400 million barrels from strategic reserves to stabilize markets, noting that roughly 164 million barrels have already been drawn down.

The agency now projects that global oil supply will shrink by about 3.9 million b/d in 2026 due to the war, a steep revision from its earlier forecast of a 1.5 million b/d decline.