Global Oil Supply Set to Decline Nearly 4% in 2026 Amid Strait of Hormuz Disruptions

The International Energy Agency (IEA) has revised its outlook for the global oil market in 2026, forecasting a 3.95 percent decline in oil supply compared to 2025 levels. This adjustment follows persistent disruptions at the Strait of Hormuz, a critical chokepoint for global oil shipments, compounded by elevated fuel prices that are dampening demand.

According to the IEA’s latest market update, global oil supply is expected to fall by an average of 4.3 million barrels per day (mb/d) to 102 mb/d in 2026, down from 106.2 mb/d recorded in 2025. Despite a temporary supply increase of 2.4 mb/d in July 2026, output remains significantly below last year’s figures due to ongoing Gulf production shutdowns totaling 8.3 mb/d.

Demand and Price Dynamics

The agency also lowered its forecast for global oil demand in 2026 by 510,000 barrels per day, projecting an overall annual decline of 1.6 mb/d. Demand contractions are expected to ease from 4.9 mb/d in the second quarter to 2.8 mb/d in the third quarter, with growth resuming in the last quarter of the year. The IEA anticipates demand will rebound strongly in 2027, expanding by 2.4 mb/d.

Supply disruptions have exerted upward pressure on oil prices. North Sea Dated crude prices surged by $25.67 per barrel in July, reaching $96.80 (approximately Sh12,533), and peaked at $105 (Sh13,595) per barrel following renewed hostilities after the collapse of an Iran-US ceasefire agreement in mid-June 2026.

Strait of Hormuz: A Lingering Risk

The IEA highlights that uncertainty over the reopening of the Strait of Hormuz remains a significant market risk. The breakdown of the ceasefire has reversed earlier supply recoveries, leading to tighter market balances. Global oil inventories have also declined sharply, dropping by 69 million barrels in July to just under 7.9 billion barrels, reducing buffers available to cushion further disruptions.

Looking ahead, the agency expects the global oil market to face a supply deficit of 1.8 mb/d in the third quarter, more than double previous estimates. While a surplus is projected toward the end of 2026, the precarious situation underscores the fragility of supply chains linked to geopolitical tensions in the Gulf region.