The International Energy Agency (IEA) estimates that the closure of the Strait of Hormuz due to the Middle East war will cause a collapse in global oil supply of eight million barrels per day in March.
In its monthly oil market report published today, the IEA describes this conflict as the largest supply disruption in history, noting that with an average of 98.8 million barrels per day this month, oil flowing to market will fall to levels last seen in the first quarter of 2022 — a drop of 7.5% compared to February’s supply.
According to the agency’s data, flows that normally pass through the Strait of Hormuz — 15 million barrels per day of crude oil and five million barrels per day of refined products — have been reduced to less than 10% of normal volumes.
These losses can only be partially offset in the short term by increased production from some non-OPEC producers, essentially the United States, Canada, Russia and Kazakhstan, which will recover part of the drop they experienced in February.
The IEA announced on Wednesday that its 32 member countries will release up to 400 million barrels from their strategic reserves — the largest such operation in its history — to try to compensate for the Strait of Hormuz supply disruption and calm markets.
Markets had priced in the move since Monday, which had already brought prices down from their peak earlier that day, when Brent briefly touched $120 per barrel. When the 400 million barrel release was confirmed on Wednesday, the price momentarily fell below $90, but in the following hours climbed back above $100 amid uncertainty over the duration of the war and how long the Strait will remain blocked. This morning, Brent was still trading above $95 per barrel.
Absent a swift resolution, the agency warns that this partial release of one third of its total strategic reserves “remains a temporary measure” and that the conflict’s ultimate impact on oil and gas markets will depend on damage to energy infrastructure and how long the vital maritime strait remains blocked.
Read more about this topic: Oil: Brent rises above $100 despite strategic reserve release
For the full year, the IEA estimates oil supply will average 107.2 million barrels per day — an increase of 1.1 million barrels per day over 2025, but a significant downward revision from the 2.4 million barrel per day increase it had forecast just one month ago, before the war began on February 28. Non-OPEC+ producers will account for all of that growth, particularly the US and Brazil.
On the demand side, the report also significantly revised expectations downward, projecting a decline of around one million barrels per day in March and April compared to the previous report. The main reason is reduced kerosene consumption as Middle East air traffic has largely ground to a halt — with knock-on effects for the rest of the world — and because the disruption to liquefied natural gas flows through the Strait of Hormuz has caused severe supply chain interruptions for liquefied petroleum gas production.
Read more: Conflict in the Middle East could drive up oil prices and shake the world. Markets in panic
The IEA anticipates that over the medium term, the rise in fuel costs will trigger lasting shifts in consumer behaviour worldwide.
