IEA Warns Oil Supply Crunch Amid The West-Asia War

3 min readMay 13, 2026 09:10 PM IST

Global oil supply will fall short of total demand this year as the war in Iran continues to severely disrupt oil production across West Asia, the International Energy Agency (IEA) warned in its monthly oil market report released on Wednesday.

The US-Israel war against Iran and the damage caused to oil infrastructure across Iran and its neighbouring Gulf states, besides the effective closure of the Strait of Hormuz, have combined to trigger the largest oil supply crisis in recorded history, sending oil prices sharply higher.

According to the IEA, the oil supply will come in 1.78 millions barrels per day below the actual demand in the year 2026, suppressing the projection in last month’s report by 410,000 barrels per day, while coming near the 4 million bpd in its December reports.

“Our latest supply and demand estimates imply that the market will remain severely undersupplied through the end of 3Q26, even assuming the conflict ends by early June,” the Paris-based agency said, adding that the supply shortfall in the second quarter is expected to be as severe as 6 million barrels per day, according to a Reuters report.

The IEA’s forecast has assumed that the traffic through the strait will gradually resume from the third quarter onwards. It also mentioned that the market could return to a modest surplus by the fourth quarter, giving depleted oil stocks a chance to slowly begin rebuilding.

The agency said the loss of supply has caused global oil inventories to deplete by 246 million barrel during March and April. This will ultimately lead to increase of price instability ahead of the oil demand phases, it said.

According to the report, the 32-member energy forum collaborated for the release of 400 million barrels from their strategic reserves in March to stabilise markets. The agency noted that around 164 million barrels of that has been released so far.

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Overall global oil supply is expected to fall by around 3.9 million barrels per day throughout 2026 as a result of the war, the agency said. This marks a sharp revision from its previous forecast, which had projected a much smaller drop of 1.5 million barrels per day.

(Written by Paramita Datta, an intern with The Indian Express with inputs from Reuters)

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