Key Points
- First annual contraction since the COVID-19 pandemic
- Iran conflict disrupts global energy flows
- Demand is expected to rebound in 2027
ISLAMABAD: Global oil demand is on track to record its first annual decline since the Covid-19 pandemic in 2020, the International Energy Agency (IEA) said, citing disruptions caused by the Iran conflict and prolonged instability in one of the world’s most important energy-producing regions.
In its latest Oil Market Report, the Paris-based agency projected that global oil consumption will fall by one million barrels per day in 2026 compared with last year.
The forecast marks a sharp reversal from expectations earlier this year, when demand was still anticipated to grow, according to the IEA.
The IEA said the decline would represent the first annual contraction in global oil demand since 2020, when widespread lockdowns and travel restrictions during the coronavirus pandemic caused an unprecedented collapse in energy consumption.
According to the agency, the ongoing conflict involving Iran has significantly disrupted crude exports from the Arabian Gulf region.
However, higher fuel prices and weaker economic activity in several major economies have further reduced consumption.
The report noted that oil week demand has been concentrated in specific regions and petroleum products, reflecting structural changes in energy use and transport patterns.
The IEA also pointed to a sharp decline in Chinese oil imports during recent months. Analysts have linked the drop to slower industrial activity, greater fuel efficiency and rapid adoption of electric and hybrid vehicles in the world’s second-largest economy, according to Reuters.
Despite the weaker demand outlook, the agency expects global oil consumption to recover next year.
The IEA forecasts demand growth of around two million barrels per day in 2027 as energy markets stabilise and supply disruptions ease.
The latest projection contrasts with the IEA’s outlook at the start of the year. In February, the agency had expected global oil demand to increase by about 850,000 barrels per day during 2026.
However, the escalation of geopolitical tensions and prolonged disruptions to energy supplies prompted a series of downward revisions over subsequent months.
The report comes as oil markets continue to assess the impact of recurring disruptions around the Strait of Hormuz, a critical shipping route for global energy supplies.
Although some export flows have recovered, uncertainty over future shipments remains elevated amid renewed hostilities in the region.
The International Energy Agency, established in 1974 following the global oil crisis, is one of the world’s leading energy advisory bodies.
Its monthly Oil Market Report is closely watched by governments, energy companies and financial markets for guidance on global supply, demand and price trends.
The agency’s latest assessment highlights how geopolitical conflicts, changing consumer behaviour and the accelerating shift toward alternative energy technologies are reshaping the global oil market.
