BAKU, Azerbaijan, September 11. Global oil demand is forecast to decline by 2.5 million barrels per day (bpd) year-on-year in 2026, the International Energy Agency (IEA) said in its latest Oil Market Report.
The forecast is 940,000 bpd lower than the IEA’s estimate published last month. The agency attributed the downgrade primarily to the impasse in negotiations between the United States and Iran, continued disruptions to Gulf oil exports and record fuel prices, particularly for diesel.
"Given the continuation of the standoff, we now assume that the normalisation we had previously expected to materialise during 2H26 will be deferred until 2027, with shipping through Hormuz remaining restricted throughout 2026," the IEA said.
The agency expects global oil demand to recover in 2027, reaching 105 million bpd, broadly offsetting the losses recorded in 2026.
According to the IEA, the projected decline in 2026 is likely to be comparable in scale to the four largest oil-demand shocks of the past 60 years, including the oil crises of the 1970s, the 2007-08 global financial crisis and the COVID-19 pandemic.
However, the agency warned that the current shock differs from the two major crises of the 21st century because it is driven by supply constraints, rather than solely by weaker demand.
"Supply shocks have historically been more impactful for oil demand, with a more sustained reduction over the medium-term because the large initial supply effects produce negative economic consequences that weigh on activity even after the disruption itself has been resolved," the IEA said.
The agency recalled that the oil shocks of the 1970s triggered a lasting structural shift in global consumption. Following the Iranian Revolution and subsequent Iran-Iraq War, global oil demand fell for four years, cutting consumption by around 10%, while growth later resumed at a substantially slower pace.
The IEA said some of the structural changes seen since the 1970s are emerging again. These include greater substitution of oil by natural gas and electricity, tighter vehicle efficiency standards, the expansion of electric vehicles and high-speed rail, as well as changes in mobility patterns due to remote working.
"Today’s technological situation has some echoes of the 1980s," the agency said, noting that substitution away from oil in power generation, particularly in the Middle East, is already weighing on demand and is expected to accelerate.
The IEA also highlighted China's changing role, saying that the strong growth in Chinese oil demand that supported global consumption after previous shocks "can no longer be taken for granted."
The agency warned that a prolonged disruption to Gulf oil flows or further damage to the global economy could result in a weaker-than-expected recovery in 2027.
"A return to business-as-usual next year is by no means guaranteed, especially in the case of a more prolonged interruption to Gulf oil flows," the IEA said.
