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IEA cuts 2026 oil demand forecast as Middle East war deepens diesel squeeze – EnviroNews
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The International Energy Agency (IEA) has sharply downgraded its forecast for global oil demand in 2026, citing the prolonged impasse in negotiations between the United States and Iran, continuing disruptions to oil flows and soaring refined-product prices, particularly diesel.
In its September 2026 Oil Market Report (OMR), published on Friday, September 11, 2026, the IEA forecast global oil demand to decline by 2.5 million barrels per day (mb/d) in 2026, 940,000 barrels per day steeper than projected in its August report.
The agency attributed the downward revision largely to the continuing disruption of oil supplies caused by the conflict in the Middle East, with the impasse in US-Iran negotiations delaying expectations of a normalisation of flows into 2027.
The losses in oil consumption are expected to be concentrated in middle distillates and petrochemical feedstocks, particularly in Asia, while global demand is projected to rebound by 2.6 mb/d in 2027, narrowly offsetting this year’s losses.
The IEA said global oil production fell by 1.6 mb/d month-on-month to 100.1 mb/d in August, as more than 10 mb/d of Gulf output remained shut in amid heightened security risks.
Global oil supply is now expected to decline by 5.7 mb/d year-on-year to an average of 100.7 mb/d in 2026, with the anticipated recovery in Gulf production deferred until 2027.
Production is forecast to rebound by 8 mb/d next year, while non-OPEC+ supply growth will be dominated by the Americas Quintet, which is expected to add 1.4 mb/d in 2026 and another 1 mb/d in 2027.
The supply disruptions have also put significant pressure on the global refining system.
Refinery throughputs reached a summer peak of 81.4 mb/d in August, up 960,000 barrels per day from July but still 4.2 mb/d below the level recorded a year earlier.
The IEA said refinery losses were spread across the Middle East, Russia and crude-importing economies in Asia, while global refinery runs are expected to decline by 2.6 mb/d to 81.5 mb/d in 2026.
Refining margins reached record levels in the Atlantic Basin during August, driven largely by sharply higher diesel cracks. In Singapore, however, surging freight rates weighed on refinery profitability.
Diesel markets under severe pressure
The agency said the most acute market tightness is now being felt in refined products rather than crude oil, with diesel prices rising dramatically amid declining supplies.
ICE Brent futures were trading at about $105 per barrel at the time of the report, representing a $21 per barrel increase since the beginning of August and about 45 per cent above pre-war levels.
Physical crude benchmarks were significantly higher, but the increase paled in comparison with refined products.
Diesel and gasoil prices in the United States surpassed $200 per barrel in early September, 94 per cent above pre-war levels, with prices in Europe and Asia also experiencing significant increases.
Diesel and gasoil account for nearly 30 per cent of global oil demand, making the disruption particularly significant for transportation, industry and economic activity.
The IEA said total oil exports from Gulf countries in August were estimated at around 13 mb/d, almost half their pre-war level.
Crude losses have narrowed to just below 45 per cent, supported by increased flows bypassing the Strait of Hormuz and US military escorts protecting shipping through the strategic waterway.
However, refined-product and liquefied petroleum gas exports remained almost 60 per cent, or 3.7 mb/d, below February levels.
Diesel supplies have been particularly affected. Net Gulf exports of diesel and gasoil averaged only 390,000 barrels per day in August, just over a quarter of their pre-war level, as flows through the Strait of Hormuz remained severely constrained.
The situation has been compounded by disruptions to Russia’s refining system and a near-halt in product exports following intensified Ukrainian attacks.
Combined net exports of diesel and gasoil from the Gulf and Russia were 1.6 mb/d lower in August than in February. The two regions had accounted for almost 45 per cent of global seaborne diesel and gasoil trade at the time.
Other regions have provided a partial offset by pushing refinery operations towards their limits to take advantage of record margins.
Global oil inventories plunge
The tightening market has also triggered a substantial drawdown in global oil inventories.
The IEA said observed global oil stocks fell by another 95 million barrels in August, bringing cumulative inventory withdrawals since February to 507 million barrels, equivalent to an average draw of 2.8 mb/d.
Oil held on water declined by 65 million barrels as tanker traffic out of the Middle East came under renewed attacks.
Non-OECD inventories fell by 52 million barrels, led by China, while OECD inventories increased by 23 million barrels.
The increase in OECD commercial stocks, however, was more than offset by a 19 million-barrel decline in government-held stocks.
Oil prices surge
The tightening market has pushed crude prices sharply higher.
North Sea Dated crude averaged $91 per barrel in August, representing a $7.61 per barrel increase from July. The benchmark subsequently surged to $113.48 per barrel on September 9.
The IEA said oil markets had moved into extreme backwardation as disruptions in the Middle East and Russia tightened supplies and buyers shifted demand towards Atlantic Basin crude.
Tanker costs also increased sharply, reflecting heightened security risks and strong demand for shipping capacity.
The agency warned that the combination of shrinking inventories, disrupted supplies and limited refining capacity could trigger further market tightening.
It said the prolonged diplomatic standoff between the United States and Iran, renewed attacks in the Gulf and at the Bab el-Mandeb chokepoint in the Red Sea, as well as continuing disruptions associated with the Russia-Ukraine war, had prevented the normalisation of oil flows.
Consequently, the IEA has further reduced its supply and demand projections for the remainder of 2026.
Global oil demand is expected to fall by 5.3 mb/d year-on-year in the second quarter, 3.4 mb/d in the third quarter and 2 mb/d in the fourth quarter, indicating that the pace of contraction is gradually easing.
Nevertheless, the agency warned that the depletion of inventory buffers and the strain on global refineries leave the oil market increasingly vulnerable to further disruptions.
“Inventories have so far played a crucial role in balancing the market,” the report noted, warning that with buffers shrinking and refineries operating under intense pressure, resolving the conflicts disrupting oil supplies has become increasingly urgent.
The IEA said progress towards ending the Middle East conflict, alongside a resolution of the Russia-Ukraine war now in its fifth year, would be critical to preventing further market tightening and deeper destruction of oil demand.
