IEA Warns of Widening Oil Supply Gap
The International Energy Agency (IEA) warned in September that disruptions caused by conflicts in the Middle East and the Russia-Ukraine war are tightening global oil markets, with inventories declining and the global refining system “stretched to the limit.”
IEA Oil Supply Gap Warning
In its September 2026 Oil Market Report, the IEA reduced its global supply and demand forecasts amid the ongoing energy shock. Global oil demand is expected to decrease by 2.5 million barrels per day (bpd) in 2026, according to the IEA. The projected decline is 940,000 bpd larger than the agency predicted in its August report. It cites the continuing impasse in negotiations between the United States and Iran as a major contributor to the decline.
The IEA states that a “normalization of flows” is unlikely to be achieved until next year. Losses are expected to be concentrated in middle distillates and petrochemical feedstock products, particularly in Asia. The agency expects oil demand to recover by 2.6 million bpd in 2027, narrowly offsetting this year’s losses.
Global oil production fell 1.6 million bpd month over month in August, with over 10 million bpd of Gulf output remaining offline amid heightened security risks. The total global oil supply is expected to fall by 5.7 million bpd to 100.7 million bpd this year.
Meanwhile, refinery throughput reached a summer peak of 81.4 million bpd in August, marking a 960,000-bpd month-over-month increase, but remained 4.2 million bpd lower than in August last year, with losses predominantly registered in the Middle East, Russia and crude-importing economies in Asia.
Oil Inventories Key to Mitigating Shortages
In the report, the IEA stressed that “Inventories have so far played a crucial role in balancing the market.”
The agency explained, “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 to avoid further market tightening and demand destruction.”
This phenomenon was also highlighted recently by Energy Network Media Group’s Chief Energy Analyst Robert Rapier in his article The Great Energy Realignment. Rapier stresses that drawing on oil inventories, such as those of China, has helped limit the rise in oil prices. However, using inventories does not create new oil; instead, it uses a buffer accumulated earlier.
Rapier adds, “The system has managed the crisis remarkably well, but part of the way it has managed is by consuming its insurance policy.”
Ongoing Security Threats in the Strait of Hormuz
On September 10, U.S. crude prices surpassed $100 per barrel for the first time since May following renewed conflict between the United States and Iran. West Texas Intermediate futures gained 6.7% to close at $102.48 per barrel, marking the highest settlement since May 19, while the international benchmark Brent crude rose by 6.3% to settle at $107.63 per barrel.
There have been several attacks in the Strait of Hormuz, a key energy trade corridor connecting Asia and Europe, in September, amid an escalation in fighting between Saudi Arabia and the Iran-backed Houthis in Yemen.
On September 12, a vessel was struck by an unknown projectile while in transit through the Strait of Hormuz, according to the United Kingdom Maritime Trade Operations. There have been multiple tit-for-tat attacks on shipping in the Strait in September.
Critical Infrastructure Damage Could Drive Energy Shortages
Shipments of oil and other products through the Strait have slowed significantly since the United States and Israel launched an attack on Iran on February 28. This has led countries across the Middle East to seek alternative delivery routes for energy products, such as Saudi Arabia’s East-West crude oil pipeline, which bypasses the Strait of Hormuz by transporting crude from Abqaiq on Saudi Arabia’s eastern Gulf coast to the port of Yanbu on the Red Sea.
On September 11, Saudi Arabia decided to take the pipeline offline as a precautionary measure following drone attacks originating from Iraq that damaged multiple pumping stations.
In response to the closure, Janiv Shah, an oil market analyst at Rystad Energy, stated, “The relatively contained price reaction suggests the market still expects Saudi inventories to cushion exports in the near term, but if the disruption extends beyond the five-to-seven-day inventory cushion, that could change quickly.”
Meanwhile, Andy Lipow, president of Lipow Oil Associates, said, “The longer the shutdown, the higher the price. Judging from the online pictures, it will take months to repair.”
Energy analysts have expressed concerns over the Houthis’ advance toward the Bab el-Mandeb Strait and the potentially significant ramifications it could have for energy markets and global trade, especially if the militant group threatens or attacks Red Sea shipping.
With inventories declining and alternative supply routes also under pressure, the outlook will increasingly depend on how long the disruptions persist, how quickly flows through major trade routes recover and whether producers and consumers can draw on remaining supply and logistical buffers.
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