From supply shock to oil glut: IEA flags scale of demand destruction caused by Iran war

The oil supply shock caused by the Iran war has eroded global demand for crude — but a lasting resolution to the conflict could drive a surge in supply volumes and trigger a major oil overhang next year, the International Energy Agency said on Wednesday. In its latest monthly oil market report, the IEA slashed its 2026 demand outlook to 1.1 million barrels a day year-over-year in 2026. That's a 700,000-barrel-per-day downgrade from last month's estimate, after deliveries plunged by 5 million barrels per day in the second quarter, the IEA said. Global supply, meanwhile, slumped to 94.5 million barrels a day in May, down 600,000 barrels a day month-on-month. That dragged output to 13.6 mb/d, well below pre-war levels. The IEA said global supply is now expected to drop by 3.9 mb/d year-on-year in 2026 to 102.4 mb/d, before rebounding strongly to 110.3 mb/d next year. Stock Chart Icon Stock chart icon Brent crude. The drop in demand reflects the combined pressure of elevated fuel prices and shortages of refined products, the agency noted, underscoring how the conflict has moved beyond a straightforward supply shock. 'Significant overhang' However, the IEA said supply is expected to surge by around 8 million barrels per day to roughly 110 mb/d, heavily outweighing a modest recovery in global oil demand of 2 million barrels per day to 105.3 million barrels per day in 2027. "Our first look at 2027 balances shows a significant overhang emerging next year," the IEA said. …