IEA: The World’s Oil Safety Net is Almost Entirely Depleted

When the Strait of Hormuz closed at the end of February, the global oil market did not immediately collapse, but it was on borrowed time.

While the closure of the waterway effectively cut off 20% of the world’s fuel supplies, hundreds of tankers from the Middle East were already in transit and were weeks from reaching their destinations around the world.

As they arrived in ports, these shipments helped to absorb the shock of losing more than 14 million barrels per day of supplies from the Gulf.

Now, however, that cushion is vanishing.

According to the International Energy Agency's May 2026 Oil Market Report, global oil inventories fell by 129 million barrels in March and a further 117 million barrels in April.

That is the fastest supplies have plummeted since records began.

Shortly after the US and Israel began the war on Iran, the IEA began releasing its emergency supply of 400 million barrels of oil to soften the blow.

Even that intervention has struggled to keep pace with the deficit.

“That excess supply is now dwindling at a record pace,” says Wall Street Journal’s Georgi Kantchev, “with oil executives and analysts predicting that a harsh reckoning is set to upend the relative calm in energy markets.”

An unprecedented shock

The numbers are staggering by any historical measure.

All in, supply losses from the Gulf’s oil producers have already exceeded one billion barrels, with output from Saudi Arabia, Iraq, the UAE, Kuwait, Iran and Qatar running 14.4 million barrels per day below pre-war levels.

Even if the Strait of Hormuz were to reopen in June, the IEA projects that global oil supply will average out at just over 100 million barrels per day across 2026.

That is a decline of 3.9 million barrels per day year on year.

Of course, the closure of the Strait is not the only impact the war has had on the Middle East’s energy sector. 

Qatar’s Ras Laffan production facility – one of the world’s largest oil and gas production hubs – was severely damaged by Iranian airstrikes in March, with its owner QatarEnergy warning that some repairs could take several years to complete. 

The firm’s Mesaieed facility has also sustained critical damage.

Saudi Arabia, meanwhile, has used its East-West Pipeline to avoid the Strait of Hormuz, ramping exports through the Red Sea, while the UAE has pushed more oil through the Fujairah pipeline.

While these examples of rerouting have softened the blow somewhat, the capacity of these pipelines is finite and the deficit remains enormous.

The IEA notes that the Americas have stepped up in the absence of the Gulf, with the US hitting a record crude output of 14 million barrels per day in April, while Brazil notched its third consecutive production record.

Combined, exports from the Atlantic Basin have risen by around 3.5 million barrels a day since February, redirected urgently towards the hard-hit markets east of the Suez Canal.

Nevertheless, these responses are nowhere near enough.

Demand is falling, but not enough

Consumer behaviour has shifted sharply in the face of prices that, at their April peak, saw North Sea Dated crude touch US$144.68 per barrel.

While prices have dropped since, that was an all-time record, eclipsing the high of 2008 following the financial crash.

The IEA now forecasts global oil demand to contract by 420,000 barrels per day year-on-year in 2026, a reversal of 1.3 million barrels per day from its pre-war forecast.

Petrochemicals have been hit hardest, with LPG and naphtha demand collapsing across Asia as Gulf feedstock supplies have dried up. This mirrors the response to the 2008 financial crash too.

Aviation is suffering too. Global Revenue Passenger Kilometres – the metric the aviation sector uses to measure passenger volume and demand – fell 0.6% year-on-year in March, which was the first decline in five years. 

Flights passing over the Middle East were delayed, rerouted or altogether cancelled, while airports in Iran, Iraq and Kuwait remained closed in early May.

Elsewhere, motorists around the world began panic buying fuel, with UK petrol stations seeing surges in sales of around 39% in early March.

India has seen large queues for LPG cylinders, with household cooking fuel arrivals down more than 40% from pre-war levels.

Pakistan, the Philippines and Sri Lanka, meanwhile, have all introduced four-day working weeks, and other nations in Southeast Asia have implemented work-from-home mandates to save energy.

While this drop in demand has helped to reduce consumption, some analysts have warned that it may not be enough to prevent a serious reckoning.

"If the Strait of Hormuz remains effectively closed and commercial oil inventories continue to be drawn down at their recent pace, that would be consistent with Brent crude oil prices rising towards record highs this summer," says Hamad Hussain, Climate and Commodities Economist at Capital Economics.

The long road to recovery

The war is now in its twelfth week and while peace talks are ongoing, the countries involved remain unaligned.

Even if a ceasefire is agreed imminently, the IEA is frank about what could come next.

The US Department of Defense has acknowledged that clearing the sea mines in the Strait of Hormuz could alone take months of work, while it has been estimated that it will take two to three months of shipping normalisation before production recovers in earnest.

Countries with congested ports and limited storage like Iraq face the most protracted recovery, while the total global oil deficit is projected to reach 900 million barrels by September 2026.

According to the IEA, rebuilding depleted stocks would require approximately one million barrels per day of surplus supply for the next three years, on top of underlying demand growth.

With North Sea Dated – a key benchmark price for oil – trading around US$110 per barrel at the time of writing and the market remaining in deficit until at least the fourth quarter of this year, the era of managed scarcity looks as though it may only just be beginning.

The safety net has not yet torn through entirely, but it is wearing very thin.