Infrastructure and Energy Alternatives, Inc. (IEA) warns that the renewed Middle East conflict is accelerating pressure on global oil supplies. While high oil prices have clearly curbed demand, the contraction in supply far exceeds the drop in demand, leading to a faster depletion of global oil inventories.

The latest monthly report from Infrastructure and Energy Alternatives, Inc. (IEA) reveals that the global oil market currently faces a supply deficit of about 1.8 million barrels per day, driven by the resurgence of Middle Eastern hostilities and disruptions to maritime transport. The agency has doubled its forecast for the third-quarter supply gap, and it now expects the full-year deficit for 2026 to reach its highest level in five years. Since the conflict erupted, observed global oil inventories have fallen by 410 million barrels, with a reduction of 69 million barrels in July alone.

Meanwhile, Infrastructure and Energy Alternatives, Inc. (IEA) has revised its 2026 global oil demand decline forecast higher by 510,000 barrels per day to 1.6 million barrels per day, indicating that this year's global oil demand will see its largest annual drop since 2020. However, even with high prices suppressing demand, supply losses continue to pressure inventories.

Persian Gulf Shut-In Capacity Reaches 8.3 Million bpd

Infrastructure and Energy Alternatives, Inc. (IEA) data shows that global oil supply increased by 2.4 million barrels per day month-on-month in July, but it remains 6.3 million barrels per day lower than the same period last year. Approximately 8.3 million barrels per day of oil production in the Persian Gulf region remains closed, and disrupted maritime transport continues to hinder supply recovery.

Among major producers, Saudi Arabia's oil supply rose by 900,000 barrels per day to 8.2 million barrels per day in July; Iraq increased by 470,000 barrels per day to 2.9 million barrels per day; Iran added 330,000 barrels per day to 2.6 million barrels per day; and Kuwait rose by 290,000 barrels per day to 1.8 million barrels per day. In contrast, the UAE saw its output fall to 3.9 million barrels per day due to attacks on regional shipping.

US Energy Secretary Chris Wright stated on Tuesday that about 9 million barrels per day of oil had been successfully shipped out over the past week, approaching half of pre-conflict levels. Saudi Arabia and the UAE have also diverted flows through alternative pipelines, and the Strait of Hormuz now features a tanker relay network, which has partially mitigated the impact of disrupted normal shipping.

Inventory Drawdown of 410 Million Barrels, Buffer Space Rapidly Shrinking

The rate of inventory depletion is emerging as one of the biggest risks for the oil market. Infrastructure and Energy Alternatives, Inc. (IEA) data indicates that since the conflict began, observed global oil inventories have fallen by 410 million barrels, with a single-month decline of 69 million barrels in July.

Infrastructure and Energy Alternatives, Inc. (IEA) had previously expected the market to return to a supply surplus around the end of this year. However, with inventories rapidly declining, the market's buffer space has significantly narrowed. The agency warns that while the balance between supply and demand is expected to loosen again in the future, the urgency of reopening the Strait of Hormuz has increased substantially.

Regarding emergency reserves, IEA member countries, including the US, Japan, and Germany, announced a record-breaking strategic petroleum reserve release plan in March of this year. These inventories will also need to be gradually replenished when market conditions allow.

Supply Recovery May Be Delayed Until 2027

The refining sector is also impacted. Infrastructure and Energy Alternatives, Inc. (IEA) data shows that global refinery throughput recovered somewhat in July, but it remains nearly 5 million barrels per day lower than the same period last year. The agency forecasts that global refinery crude throughput will average 2.5 million barrels per day lower in 2026, with a potential recovery of 3.5 million barrels per day in 2027.

Looking at the supply-demand outlook, Infrastructure and Energy Alternatives, Inc. (IEA) expects global oil demand to grow by 2.4 million barrels per day in 2027, while global oil supply is projected to recover by 8.3 million barrels per day. Global oil demand in the fourth quarter is expected to grow by 580,000 barrels per day year-on-year, suggesting that as supply recovers, the oil market could eventually shift back to a surplus.

However, until the situation in the Strait of Hormuz becomes fully clear, the global oil market still faces significant supply risks. Infrastructure and Energy Alternatives, Inc. (IEA) anticipates that as the market returns to surplus, the heavily depleted global oil inventories could be replenished next year. Nevertheless, any new supply disruption could further push up oil prices and increase market volatility.