IEA Cuts 2026 Oil Demand Forecast Again as Iran War Impasse and Houthi Attacks Squeeze Supply

The International Energy Agency cut its 2026 global oil demand forecast for the second straight month on Friday, warning that consumption may fall even further as the war between the US, Israel and Iran drags on with no resolution.

In its September Oil Market Report, the Paris-based agency projected global demand will decline by 2.5 million barrels a day this year, up from a 1.6 million bpd drop it forecast in August. The IEA called it the biggest annual demand loss since the 2020 Covid pandemic shut down large parts of the world economy, according to Bloomberg and NDTV Profit.

The Supply Side Is Worse Than the Demand Side

The IEA also cut its global supply forecast, projecting a 5.7 million bpd annual decline for 2026, about 6% below 2025 levels, up from the 4% drop it forecast last month, according to CNBC. Global oil production fell 1.6 million bpd month-over-month to 100.1 million bpd in August, with more than 10 million bpd of Gulf output shut in, Xinhua reported, citing the same IEA report.

That's a bigger shortfall than the agency projected in its August 12 report, which put Gulf production at 23.9 million bpd in July, still 8.3 million bpd below pre-war levels, according to Fox News. The result is a global deficit the IEA now pegs at roughly 1.7 to 1.75 million bpd for the year, up from 1.3 million bpd in last month's report, per NDTV Profit.

Global inventories have absorbed the gap. The IEA said observed stockpiles fell 95 million barrels in August alone, bringing cumulative draws since February to 507 million barrels, an average of 2.8 million bpd, according to Xinhua. Oil-on-water volumes also dropped 65 million barrels in August as tanker traffic out of the Middle East came under renewed attack.

"With buffers shrinking and the global refining system stretched to the limit, the need for progress in resolving the conflict in the Middle East — and the Russia-Ukraine war, which is now in its fifth year — is greater than ever," the IEA said, according to CNBC.

Nobody Agrees on How Much Oil Is Actually Offline

The U.S. Energy Information Administration pegged Gulf shut-in production at an average 5.5 million bpd in July, and expects flows to largely normalize by early 2027, though it warns some producers may never fully recover their pre-war output, according to Fox News.

Petroleum geologist Art Berman told Fox News Digital the real number is closer to 8 million barrels a day shut in, with total world production down about 10 million bpd. Berman argues that reopening the Strait of Hormuz to tanker traffic doesn't fix the underlying problem. "Eventually, those tankers have to be filled with oil," he said, warning some damaged wells could take months to restart and others may never come back online. "This is potentially a kind of a world-changing event, even if we resolve the political issues," Berman said.

Physical damage to oil infrastructure doesn't reverse the day a ceasefire is signed. Wells and refineries take time and capital to rebuild, and some reservoirs degrade permanently when shut in improperly. Whether that applies broadly across the Gulf's roughly 8-10 million bpd of lost output, versus recovering on the EIA's faster 2027 timeline, is not something the sources here resolve.

The White House Says the Blockade Is Working

A White House official, speaking on background to Fox News, pointed to a sharp decline in oil prices following the signing of a memorandum of understanding and said the Strait of Hormuz remains open, with a U.S. naval blockade "in full effect."

That claim sits uneasily next to the IEA's own numbers. Prices did fall after that MOU was signed. But Xinhua, CNBC and NDTV Profit all report that talks between Washington and Tehran have since hit an impasse, and that renewed attacks in both the Strait of Hormuz and the Red Sea's Bab el-Mandeb chokepoint pushed the IEA to cut its forecasts again this month. Brent crude surged past $100 a barrel this week for the first time since July, according to NDTV, and CNBC noted a weekly close above $100 would be the first since mid-May. Both benchmarks eased Friday morning, with Brent trading 3% lower at $104.44 and WTI down 2.6% at $99.86, per CNBC.

Adding to the pressure, Yemen's Houthi rebels claimed Friday to have seized control of the Bab el-Mandeb strait, a critical route to the Suez Canal, according to Free Malaysia Today. That claim is unconfirmed by any government or international body in the available reporting. CNBC separately described the group as "Iran-backed Houthis," now engaged in intensifying fighting with Saudi-backed forces, per NDTV Profit.

Diesel Is the Real Pain Point

The sharpest damage is hitting diesel and gasoil, which make up nearly 30% of global oil demand. U.S. diesel prices surpassed $200 a barrel in early September, 94% above pre-war levels, the IEA said, according to Free Malaysia Today. Europe and Asia aren't far behind, and Ukrainian strikes on Russian refineries are compounding the squeeze on global fuel supply.

Newsquawk flagged an unusual feature of this report: demand downgrades are normally a growth story. This one is a war story, meaning the size of the supply deficit and the pushed-back 2027 recovery timeline matter more than the demand figure itself. The question now is whether Gulf production comes back on the EIA's early-2027 schedule, or whether Berman's warning about permanently damaged wells turns out to be the more accurate read. Neither the IEA nor the EIA claims certainty on that point.