Oil Demand Heads for First Drop Since Pandemic Era, IEA Warns

Global oil consumption is expected to decline in 2026 for the first time since the Covid-19 pandemic, according to the International Energy Agency (IEA), as conflict in the Middle East disrupted production, exports, and global energy flows.

The IEA estimates that worldwide oil demand will fall by around 1 million barrels per day compared with the previous year, marking the first annual decline since 2020, when lockdowns and economic disruptions caused a historic collapse in energy consumption.

However, the decline is not driven by a single global trend. Instead, it reflects a combination of regional disruptions, weaker-than-expected demand growth, and the impact of instability in one of the world’s most important oil-producing regions.

Middle East Disruptions Reshape Oil Markets

The closure and slowdown of traffic through the Strait of Hormuz has been one of the biggest factors affecting oil markets. The narrow waterway connects the Persian Gulf with global shipping routes and handles a significant share of the world’s oil and gas exports.

According to the IEA, the disruption has created a sharp imbalance across different regions and fuel products. Producers in the Middle East have faced difficulties exporting crude, while refiners and consumers have dealt with uncertainty over future supplies.

The agency’s forecast assumes that a ceasefire will hold and that shipping through the Strait will gradually return to normal. However, continued military escalation between the United States and Iran has increased uncertainty over whether this recovery will happen smoothly.

“Renewed exchanges of fire in the Gulf highlight the risks of not reaching a lasting peace agreement,” the IEA warned, noting that stability is essential for the normalization of global oil markets.

Recovery Expected, but Not Immediately

Although oil markets are expected to recover, the IEA does not expect a rapid return to normal conditions.

Toril Bosoni, head of oil markets at the IEA, said that the recovery will likely be “very uncertain and unstable” because of ongoing geopolitical risks.

Still, increased production from other oil-producing countries and weaker demand growth could push the global market back into surplus later in the year.

A return to surplus would help countries rebuild strategic inventories and reduce pressure on energy prices.

EV Adoption Adds Pressure on Oil Demand

While geopolitical tensions have accelerated the short-term disruption in oil markets, longer-term changes in transportation are also reshaping global energy demand.

Electric vehicle adoption continues to expand rapidly in 2026, limiting growth in oil consumption from the transportation sector. The International Energy Agency expects global electric car sales to reach around 23 million vehicles this year, representing nearly 30% of new car sales worldwide.

China remains at the center of this shift. The world's largest automotive market is expected to see electric vehicles account for almost 60% of new car sales in 2026, supported by strong domestic manufacturers, lower battery costs, and widespread consumer adoption. 

The International Energy Agency (IEA) confirmed that the global EV fleet displaced about 1.7 million barrels per day (mb/d) of oil demand and is projected to rise to 2.7 mb/d by 2030.

What This Means for the Global Economy

A decline in oil demand could have different effects across economies.

For oil-importing countries, lower consumption and potential future surpluses could provide relief by reducing energy costs and inflation pressures.

For oil-exporting nations, however, weaker demand growth creates challenges. Countries that rely heavily on petroleum revenues may face pressure on government budgets and investment plans.

The situation also highlights a longer-term shift in global energy markets. Slower demand growth, efficiency improvements, renewable energy expansion, and changing consumption patterns are gradually reshaping the role of oil in the global economy.

For now, the market outlook depends heavily on developments in the Middle East. A stable reopening of major shipping routes could restore supply flows, while renewed conflict could quickly change expectations and push energy markets into another period of volatility.