IEA Sees Supply-Side Squeeze Coming from War

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Written by Daniel Graeber for IIR Energy Intelligence (Sugar Land, Texas)

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Summary

After the market ran a surplus through 2025, the outbreak of war in the Middle East could easily flip it to a deficit. Global crude oil prices are up 15% since the fighting began.

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Markets Will Flip

The conflict raging in the Middle East could easily flip the market equation from a surplus to a deficit, the International Energy Agency (IEA) said Thursday.

Regional crude and natural gas prices continued their ascent Thursday, amid escalating tensions in the Middle East triggered by the joint U.S.-Israeli bombing that left Iranian Supreme Leader Ali Khamenei and a handful of top officials dead.

On Thursday, the Paris-based IEA, formed by western powers in response to the Arab oil embargo from the 1970s, said there was a significant market overhang since last year that was easily expected to spill over to 2026.

"Ahead of the military actions that began on February 28, global oil supply was also expected to far exceed demand in 2026," the IEA said. "However, prolonged supply disruptions could flip the market into a deficit."

The agency noted that production centers have been spared so far, but operators in oil-rich nations like Iraq and Kuwait are shutting in production because of the risks involved in moving product through the Persian Gulf and the Strait of Hormuz.

By the Numbers

• 40% of the capacity of a refinery in Bahrain knocked out
• 15% spike in Brent since Monday
• 62% spike in TTF, with Qatar declaring force majeure

Markets on Edge, Options Limited

Markets were still on edge in early Thursday trading. The price for Brent crude oil, the global benchmark for the price of oil, was up 2.7% in pre-market trading to hit $83.56. The Dutch Title Transfer Facility (TTF), which serves as the European benchmark for the price of wholesale natural gas, was up 4.8% to trade at $51.12 per million British thermal units. Prices are up 15% and 62%, respectively, so far this week.

On Tuesday, the Iranian military said it would close the Strait of Hormuz to vessel traffic, though U.S. President Donald Trump later said shippers could get insurance and military protection from the U.S., easing the market rally somewhat.

"Options for oil flows to bypass the Strait of Hormuz are limited," the IEA said. "Only Saudi Arabia and the UAE have operational crude pipelines that could potentially reroute flows to bypass the Strait, with an estimated 3.5 million BBL/d to 5.5 million BBL/d of available capacity."

The Strait of Hormuz can handle as much as 20 million BBL/d.

While production centers are spared, it's another story for refineries. Saudi Aramco curbed production from its Ras Tanura Refinery after it was hit by a drone. Nearly a dozen alerts sent to subscriber-based clients of IIR Energy Intelligence notified them of various issues across the region. Subscribers to Industrial Info's Global Market Intelligence (GMI) Petroleum Refining Plant Database can learn more about Ras Tanura from a detailed plant profile.

State-owned Bahrain Petroleum Company shut down parts of its refinery in Sitrah because of the ongoing conflict, Industrial Info reported early Thursday. About 40% of its nameplate capacity of 448,000 BBL/d was impacted

Subscribers can learn more about the Sitrah Refinery in a detailed plant profile.

In natural gas markets, the sector was rocked Thursday after QatarEnergy declared force majeure, a contractual clause freeing it from its obligations due to circumstances beyond its control. Alongside the U.S. and Australia, Qatar is among the largest exporters of liquefied natural gas (LNG) in the world.

Subscribers can learn more from a company profile of QatarEnergy.

Rhetoric Intensifies

Iran said Thursday that the U.S. would come to "bitterly regret" the downing of an Iranian warship in international waters earlier this week. Iranian Foreign Minister Abbas Araghchi said on social media that the frigate was a guest of the Indian military at the time it was hit by a torpedo fired by a U.S. military submarine.

European forces, meanwhile, are deploying their assets to the region, while the Israeli military continues to pound Lebanon. During a joint press conference Wednesday with members of the Joint Chiefs of Staff, U.S. Defense Secretary Pete Hegseth said the U.S. was at a clear advantage.

"I stand before you today with one unmistakable message about Operation Epic Fury: America is winning decisively, devastatingly and without mercy," he said.

Key Takeaways

• No easy way to pipe around Strait of Hormuz
• Markets could flip to a deficit, IEA warns
• A handful of refineries in the region impacted by conflict

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About IIR News Intelligence
IIR News Intelligence is a trusted source of news for the industrial process and energy markets, powered by Industrial Info Resources' Global Market Intelligence (GMI).

About Industrial Info Resources
Industrial Info Resources (IIR News Intelligence) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking more than 250,000 current and future projects worth $30.2 trillion (USD).