War in the Middle East is causing the biggest oil supply disruption in history, the International Energy Agency said on Thursday as it agreed to release record volumes from strategic reserves to cover shortages and rising prices.
Global supply is expected to drop by 8 million barrels per day in March, the IEA said in its latest monthly oil market report – equivalent to about 8 percent of global demand – due to the blockade of the Strait of Hormuz, a narrow channel along the Iranian coast, since the US and Israel launched airstrikes on Iran on February 28.
The outlook from the IEA, which advises industrialized countries, contradicts its earlier warnings of a large surplus in the market for the first quarter of 2026.
Read more: Oil tankers attacked Iraq as the Middle East crisis escalated.
However, it added that supply could increase in April as some Middle East Gulf producers use alternative export routes to bypass the Strait of Hormuz, and said that, for the year, production would still expand faster than global demand.
Gulf production declines amid conflict
Oil prices rose on Thursday, as Iran stepped up attacks on oil and transportation facilities in the Middle East, raising fears of a protracted conflict and disrupting the flow of oil through the strait. O/R
Brent Crude LCOc1Crude oil, which hit $119.50 a barrel on Monday, the highest since mid-2022, was down 5 percent from Thursday’s $97 a barrel.
Middle East Gulf states including Iraq, Qatar, Kuwait, the United Arab Emirates and Saudi Arabia have cut total oil production by at least 10 million barrels per day as a result of the conflict, the IEA said, adding that the losses were set to increase without a swift resumption of shipping flows.
“Shut-in upstream production will take weeks and, in some cases, months to return to pre-crisis levels, depending on the degree of complexity of the field and the time it takes for workers, equipment and resources to return to the region,” the agency said.
Markets are in a critical period.
The IEA agreed on Wednesday to release a record 400 million barrels of oil from member countries’ strategic reserves to counter a surge in prices since the start of the war against Iran.
Speaking in Istanbul, IEA Executive Director Fatih Birol said the agency’s decision had already had a “strong impact” on energy markets, which were in a “very critical period”. He declined to answer a question about the daily pace of release from hoarders.
The IEA said the Middle East crisis was also holding back oil demand as airlines canceled flights, while a more uncertain economic outlook and higher prices threatened demand forecasts.
Global demand during March and April was expected to be about 1 million bpd lower than earlier estimates, the IEA said. For the year, global demand was expected to rise by 640,000 bpd in 2026, down 210,000 bpd from the previous forecast, and about half the rate forecast by producer group OPEC on Wednesday.
Global supply is still expected to grow in 2026.
Despite the March production cut, the agency still expects oil supplies to grow faster than global demand in 2026, on average.
Global supply will rise by 1.1 million bpd, the IEA said, down from the 2.4 million bpd expected last month.
Overall, IEA forecasts show supply will exceed demand by 2.46 million bpd in 2026, down from the 3.73 million bpd surplus reported last month.
Efforts by Saudi Arabia and the United Arab Emirates to use export routes that bypass the Strait of Hormuz continue to grow, the IEA said, and are among plans that could partially offset the losses and provide an increase in global oil supplies from April to June.
(Reporting by Alex Lawler; Additional reporting by Izzy Erquin; Editing by Alex Richardson)
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