Key facts
- Renewed US-Iran conflict threatens oil market recovery and Opec+ production gains.
- IEA forecasts global oil demand to fall in 2026, the first decline since 2020.
- Opec+ production rose by 2.25 million barrels per day in June.
- Escalating US-Iran tensions could cripple exports through the Strait of Hormuz.
- The US revoked Iran's oil export sanctions waiver, potentially impacting its production.
The International Energy Agency (IEA) has issued a stark warning that renewed conflict between the United States and Iran poses a significant threat to the recovery of the global oil market. The agency projects that global oil demand will shrink in 2026, marking the first contraction since 2020, largely due to the conflict's impact on crucial Gulf exports. The IEA predicts supply will expand by 7.5 million bpd next year after a 3.7 million bpd contraction this year, but this is contingent on improved Hormuz transits. An escalation in hostilities could upend the forecast for a market surplus next year, with a lasting peace agreement being a 'must' for oil markets to normalise.
Opec+ crude production experienced a partial recovery in June, rising by 2.25 million barrels per day (b/d) to 31.95 million b/d. However, this rebound is at risk as escalating tensions could cripple exports through the Strait of Hormuz. In the month following the initial conflict, Opec+ production had plummeted by a record 8.1 million b/d. Key members like Saudi Arabia, Iraq, and Kuwait increased output in June, with Saudi Arabia adding 520,000 b/d, Iraq 600,000 b/d, and Kuwait 940,000 b/d. Iran's production rose by 100,000 b/d after the US removed a blockade on its exports and issued a sanctions waiver, but the US has since revoked this waiver, potentially impacting Iran's production capacity. The UAE significantly boosted its output by 1.71 million b/d to a record 3.82 million b/d.
Despite the June rebound, Opec+ members collectively remained about 7.14 million b/d below their production target. Seven core alliance members agreed to increase their collective output ceiling by a further 188,000 b/d for August. The IEA also noted that Russia's production was 760,000 b/d below target in June due to Ukrainian attacks on its energy infrastructure.