Hormuz "chokes," IEA warns of "the largest supply crisis in history," this year's oil demand growth forecast cut by 25%.

Escalation of the Strait of Hormuz situation triggers severe supply shock: The International Energy Agency (IEA) stated in its latest monthly report that this conflict has led to the largest supply disruption in its history, affecting 7.5% of global oil supply. As a result, the agency has significantly lowered its expectations for global oil demand and supply.

On March 12, according to Bloomberg, the IEA reported on Thursday that global oil supply this month has decreased by an average of 8 million barrels per day, mainly due to the situation in Iran, with transit flows through the Strait of Hormuz plummeting by over 90%. The demand side has also been hit, with soaring oil prices, flight cancellations, and economic uncertainty dragging it down. The IEA has downgraded its forecast for global oil demand growth in 2026 from 850,000 barrels per day to 640,000 barrels per day, a decrease of around 25%. On the supply side, the forecast for global oil supply growth in 2026 has also been cut from 2.4 million barrels per day to 1.1 million barrels per day.

To stabilize market fluctuations, IEA member countries agreed on Wednesday to release a record 400 million barrels of oil from emergency reserves. Due to the ongoing escalation of the Strait of Hormuz situation, Brent crude oil prices briefly returned above $100 per barrel on Thursday.

Hormuz Blockade: Largest Supply Shock in History

Influenced by the Middle East situation, oil tankers have halted transit through the Strait of Hormuz. IEA data shows that oil flow through the strait has dropped by over 90%. Last year, an average of about 20 million barrels of crude oil and refined products were transported through it daily.

Actual shipping disruption has forced Persian Gulf oil-producing countries to collectively reduce supply by about 10 million barrels per day. Although Saudi Arabia, the UAE, and others are able to redirect some exports to alternative routes, the overall scale of supply loss remains unprecedented. The IEA also warns that the closure of the strait threatens around 4 million barrels per day of refinery capacity within the region. Restricted feedstock supply will limit other regions’ ability to fill the supply gap, with particularly acute shortages of diesel and jet fuel.

Demand and Surplus Expectations Narrow Together

The supply shock is rapidly spreading to the demand side. The IEA’s latest report has lowered its forecast for global oil consumption growth in 2026 by about 25% to 640,000 barrels per day, the lowest level since the annual forecast was introduced in April last year. The downgrade is mainly due to rising oil prices, flight cancellations, and macroeconomic uncertainty.

On the supply side, production losses in the Middle East have been partly offset by increased output from non-OPEC+ oil producers, with OPEC+ members such as Kazakhstan and Russia also boosting production. The IEA points out that these factors have narrowed the 2026 global oil surplus expectation by more than one-third, down to about 2.4 million barrels per day. Prior to the crisis, driven by supply growth in the US, Canada, Guyana, and Brazil, the agency had expected a record supply surplus this year.

Member States Release 400 Million Barrels of Emergency Reserves

To cope with intense market volatility, IEA Executive Director Fatih Birol announced on Wednesday that its 32 member countries will jointly release 400 million barrels of emergency oil reserves—a historic record. However, key details such as the pace and duration of the release have not yet been disclosed.

U.S. Energy Secretary Chris Wright stated that the U.S. will be responsible for releasing 172 million barrels from the Strategic Petroleum Reserve, but it is expected to take around 120 days to complete the entire delivery.

Risk Disclaimer and Liability ClausesThe market carries risks, and investment should be made cautiously. This article does not constitute personal investment advice, nor does it take into account the specific investment objectives, financial circumstances, or needs of individual users. Users should consider whether any views, opinions, or conclusions in this article are suitable for their particular situation. Investing accordingly is at one's own risk.