The IEA Warns of Renewed Oil Supply Risk as Gulf Exports Stay Below Pre-War Levels and Brent Trades Above 91 Dollars
The International Energy Agency has warned that the security of oil supply has come under renewed strain, saying that an escalation in hostilities affecting the Strait of Hormuz and regional energy infrastructure has increased concerns over the flow of crude to world markets. In a statement on 21 July, the agency also pointed to emerging threats to the Bab el-Mandeb Strait, a route that has grown more important as a way to bypass the Strait of Hormuz, underlining how exposed global energy trade has become to the conflict involving Iran and the wider regional tensions.
The Strait of Hormuz is the single most important chokepoint in the global oil trade. Around 20 million barrels of crude and refined products pass through it each day, equal to about a quarter of the world’s seaborne oil trade, along with close to a fifth of global liquefied natural gas shipments, including the overwhelming majority of exports from Qatar and the United Arab Emirates. About 80 percent of the oil and 90 percent of the gas that transits the strait is bound for Asia, which is why any threat to the waterway reverberates through energy markets worldwide.
The disruption earlier in 2026 was severe. According to the agency, flows through the strait fell to an average of about 2.7 million barrels a day between March and May, down from roughly 20 million before the conflict, with cumulative supply losses from producers in the region exceeding 1.3 billion barrels. A ceasefire allowed a partial recovery, and total Gulf oil exports rose by 6.5 million barrels a day in June to 16.1 million, but that figure, which reflects exports rather than production, remained well below the average of about 24 million barrels a day seen before the war, leaving the market sensitive to any renewed escalation.
The agency also set out the factors that have helped steady the market through the disruption. Significant volumes from Gulf producers have continued to reach customers through alternative routes that bypass the Strait of Hormuz, while oil producers elsewhere, notably the United States, Brazil, Venezuela and Kazakhstan, have increased their exports. China has played a stabilising role by cutting its crude imports by nearly 50 percent, and member countries of the International Energy Agency have released about 290 million barrels of the 400 million barrels they had made available to the market, drawing on emergency stocks to cushion the loss of supply.
The shock has reshaped the agency’s view of the year. Having previously expected modest demand growth and a comfortable surplus, the International Energy Agency now sees global oil demand contracting by roughly 1 million barrels a day across 2026 as high prices and disruption weigh on consumption, with the sharpest fall of about 4.8 million barrels a day in the second quarter, easing to about 1.7 million in the third before a return to growth of about 1.2 million in the fourth. Global supply is projected to fall by about 3.7 million barrels a day to an annual average of 102.6 million. The agency expects the market to swing back toward surplus later in the year if flows continue to recover, but it cautioned that the buffer against further shocks is thin, with producers having drawn down almost all of their spare capacity as they restored barrels. IEA data put the group’s effective spare capacity at just about 0.17 million barrels a day against June levels, an unusually thin cushion, even as OPEC and allied producers lifted output to about 32.4 million barrels a day during the month.
Prices have reflected the renewed risk. Brent crude climbed more than 3 percent to trade above 91 dollars a barrel, its highest since the middle of June, with West Texas Intermediate near 85 dollars, as fresh hostilities in the Gulf revived fears over the security of Hormuz traffic. The moves show how quickly geopolitical risk can feed into energy costs when spare capacity is limited and a large share of global supply depends on a single waterway.
Why it matters: For the Gulf, the Strait of Hormuz is the artery through which most of the region’s oil and gas reaches world markets, so any threat to its security bears directly on export revenues, shipping and insurance costs and the wider economies of the producing states. For global consumers, thin spare capacity and a heavy reliance on the strait mean that prices can rise sharply on any escalation, feeding into inflation and growth at a time when demand is already fragile. On our reading, the episode underscores how exposed the oil market remains to a disruption concentrated in one chokepoint, and how much the response has leaned on alternative routes, emergency stocks and supply from outside the region.
Outlook: The near-term path for supply and prices hinges on whether the latest escalation is contained and whether flows through the strait continue to recover toward pre-conflict levels. The International Energy Agency’s expectation of a return to surplus depends on de-escalation holding, while any further disruption to Hormuz or to the Bab el-Mandeb route would tighten the market quickly given the limited spare capacity available to offset lost barrels.
Sources: International Energy Agency; Bloomberg; CNBC.
