- Global oil supply disrupted by more than 10 mb per day as Strait of Hormuz flows collapse.
- Emergency stock release of 400 mb offers temporary relief amid rising price volatility.
- Demand outlook weakens as aviation disruptions and higher prices weigh on consumption.
The latest Oil Market Report from the International Energy Agency highlights an unprecedented disruption to global oil supply as conflict in the Middle East escalates, severely constraining flows through the Strait of Hormuz. The crisis has effectively turned oil into a strategic instrument of war, with far reaching implications for energy markets and economic stability.
Crude and refined product flows through the Strait have fallen sharply from around 20 mb per day before the conflict to minimal levels. Limited alternative export routes and rapidly filling storage capacity have forced Gulf producers to cut output by at least 10 mb per day. Without a swift resumption of shipping, supply losses are expected to deepen further.
The disruption has cascaded across the value chain. Upstream production has been curtailed by an estimated 8 mb per day, alongside an additional 2 mb per day of condensates and natural gas liquids. Major producers including Iraq, Qatar, Kuwait, the United Arab Emirates and Saudi Arabia have all reduced output significantly.
Downstream operations are also under pressure. More than 3 mb per day of refining capacity has already been shut due to direct attacks and logistical constraints, while up to 4 mb per day remains at risk as storage tanks reach capacity. In 2025, Gulf producers exported approximately 3.3 mb per day of refined products and 1.5 mb per day of LPG, volumes now largely disrupted. Diesel and jet fuel markets are particularly exposed due to limited spare capacity elsewhere.
Global oil supply is projected to fall by 8 mb per day in March, although some increases from non OPEC plus producers, including Kazakhstan and Russia, are providing partial offset. Looking ahead, supply is expected to grow by 1.1 mb per day in 2026, driven entirely by non OPEC plus output.
The crisis has also impacted demand. Flight cancellations across the Middle East have reduced jet fuel consumption, while disruptions to LPG and petrochemical feedstocks are constraining industrial activity. Global oil demand is expected to decline by around 1 mb per day in March and April compared to earlier forecasts. For 2026, demand growth has been revised down to 640 kb per day, a reduction of 210 kb per day.
Oil prices have shown extreme volatility since late February, when joint air strikes by the United States and Israel on Iran intensified the conflict. Benchmark Brent crude surged close to US$120 per barrel before easing to around US$92 per barrel, still up by US$20 per barrel over the month.
To stabilise markets, IEA member countries agreed on 11 March to release 400 mb of oil from emergency reserves. Global oil inventories stood at 8.21 billion barrels in January, the highest level since February 2021, with OECD countries holding around 50% of stocks and China accounting for 15%.
While the coordinated release provides a critical buffer, it is unlikely to fully offset prolonged disruptions. The report emphasises that the trajectory of oil and gas markets will depend heavily on the duration of the conflict, the extent of damage to infrastructure and the restoration of safe shipping through the Strait of Hormuz. Without these conditions, supply constraints and market instability are expected to persist.
Author: Bryan Groenendaal
