IEA warns oil supply shock is deepening as Gulf recovery slips to 2027

The International Energy Agency has sharply downgraded its outlook for the global oil market, warning that the recovery of Gulf production is now likely to be delayed until 2027 as conflict, attacks on maritime routes and severe refining constraints deepen the supply shock.

In its September Oil Market Report, the agency forecast that world oil supply will fall by 5.7 million barrels per day in 2026 to an average of 100.7 million barrels per day. That is 1.3 million barrels per day below its previous projection.

Global production declined by 1.6 million barrels per day in August to 100.1 million barrels per day, with more than 10 million barrels per day of Gulf output still shut in because of security risks. The IEA now expects a rebound of eight million barrels per day in 2027 rather than a meaningful normalisation during the current year.

The IEA said high prices and reduced availability are weighing on demand. The agency expects global oil consumption to fall by 2.5 million barrels per day in 2026, a decline 940,000 barrels per day steeper than it estimated one month earlier. Demand is projected to recover by 2.6 million barrels per day in 2027, narrowly exceeding this year’s loss.

Inventory data show how much of the imbalance has been absorbed by stored oil. Observed global stocks fell by another 95 million barrels in August and by 507 million barrels between February and August, an average draw of 2.8 million barrels per day. Oil held at sea declined by 65 million barrels as tanker traffic from the Middle East faced renewed attacks.

The greatest pressure is increasingly visible in refined products rather than crude alone. Global refinery throughput reached 81.4 million barrels per day in August, but remained 4.2 million barrels per day below the level recorded a year earlier. Outages in the Middle East and Russia, combined with reduced runs in crude-importing Asian economies, have tightened diesel and gasoil supplies.

U.S. diesel prices exceeded $200 per barrel in early September, according to the IEA, 94% above pre-war levels. Diesel accounts for almost 30% of global oil demand and is essential to freight, agriculture, construction and industrial activity. The agency warned that a prolonged shortage could transmit the energy shock into transport costs and consumer prices.

Gulf oil exports in August were estimated at around 13 million barrels per day, roughly half their pre-war level. Crude flows performed somewhat better because some volumes bypassed the Strait of Hormuz and protected shipping continued through the passage. Refined-product and liquefied-petroleum-gas exports remained almost 60% below February levels.

Net Gulf exports of diesel and gasoil averaged only 390,000 barrels per day, slightly more than one quarter of their pre-war volume. Intensified Ukrainian attacks on Russia’s refining system and the near-halt of Russian product exports compounded that loss. Together, Gulf countries and Russia supplied almost 45% of global seaborne diesel and gasoil trade before the latest disruptions.

IEA data show the extent of the tightening. North Sea Dated crude averaged $91 per barrel in August before reaching $113.48 on September 9. Brent futures were trading near $105 when the IEA prepared the report, while tanker costs rose with demand for ships and the increasing security risk around Hormuz and Bab el-Mandeb.

Saudi production illustrates the scale of the interruption. The IEA estimated the kingdom’s August supply at 5.97 million barrels per day, far below its implied target of 10.42 million. The agency said shrinking inventories and strained refinery capacity leave the market with less room to absorb further attacks or delays in restoring Gulf exports.