The International Energy Agency (IEA) has warned of an unprecedented energy shock, with global oil production plunging by over 10 million barrels per day in March, as diplomatic efforts between Washington and Tehran fail.
According to the latest monthly report from the IEA, released on Tuesday, the world is currently grappling with the largest disruption to oil supplies in history.
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The paralysis of transit lines through the Strait of Hormuz has seen vital shipments fall from 20 million barrels per day in February to just 3.8 million in early April.
This acute squeeze has pushed North Sea Dated crude to $130 per barrel, while the agency now expects global demand to contract by 80,000 barrels per day across the whole of 2026, a sharp reversal from previous growth forecasts.
While futures prices, such as Brent crude and WTI, are trading around $96–$98 per barrel at the time of writing, the physical market for immediate delivery showed extreme tightness, with prompt cargoes trading $20–$30 above the benchmarks.
The announcement of a two-week ceasefire between the US and Iran has provided a minor reprieve, but the IEA remains cautious. The agency notes that it is entirely unclear whether this pause will lead to a lasting peace or a return to regular shipping flows.
A looming US blockade on vessels entering Iranian ports, expected to take effect shortly, also adds further risk.
Without a permanent negotiated settlement, the IEA warns that the world must brace for a "prolonged conflict" scenario where energy markets face even more severe disruptions in the second half of the year.
Following the failed US-Iran negotiations, US President Donald Trump asserted that Iran is "unwilling to give up its nuclear ambitions" and renewed threats conditional on the reopening of the Strait of Hormuz by stating "they better begin the process of getting this international waterway open and fast!"
OPEC+ production, inventory depletion and demand destruction
The physical impact of the conflict is most visible in the production data of the OPEC+ alliance, where member states have seen their output crater due to infrastructure damage and the inability to move barrels.
According to data for March, total OPEC+ supply fell by 9.4 million barrels per day on a month-on-month basis. The heavyweight of the group, Saudi Arabia, saw its supply drop from 10.4 million barrels per day in February to 7.25 million in March.
The situation is even more dire for Iraq, which saw production fall from 4.57 million barrels per day to 1.57 million, representing a loss of nearly two-thirds of its capacity.
Kuwait and the UAE also recorded significant declines, with Kuwaiti supply falling to 1.19 million barrels per day from a February high of 2.54 million.
While some exports have been redirected through the west coast of Saudi Arabia or the ITP pipeline to Turkey, these alternative routes have only increased to 7.2 million barrels per day, leaving a massive deficit that the global market is struggling to fill.
The scarcity of crude has triggered what the IEA describes as "demand destruction" particularly in the petrochemical and aviation sectors.
Global oil demand is estimated to have already contracted a further 2.3 million barrels per day in April.
This decline is led by Asian petrochemical producers who have been forced to curtail operations as feedstock supplies dry up, while flight cancellations across Europe and Asia have led to a vertical drop in jet fuel consumption.
Refineries that are not directly impacted by the conflict are nonetheless struggling with record-high costs. Global crude runs are expected to decline by 1 million barrels per day on average throughout 2026.
In Singapore, the price for middle distillates reached all-time highs above $290 per barrel, reflecting the desperation of refiners to secure any available product.
The IEA notes that while refining margins surged temporarily, the overall tightness in the market is unsustainable for the global industry.
To maintain basic operations, many nations are also now aggressively drawing down their domestic stockpiles.
Global observed oil inventories fell by 85 million barrels in March, though the agency highlights a concerning "disconnect" in geography.
While stocks in importing Asian countries dropped by 31 million barrels, inventories actually rose within the Middle East and China, essentially becoming trapped behind the blockade or held in floating storage.
