Oil Supply Crisis 2026: IEA Warns of 1.8m Barrel Shortage as Strait of Hormuz Closure Bites

Global oil reserves are depleting at the fastest rate ever recorded as war in the Middle East plunges the world into a spiral of resource scarcity, a trend that threatens to destabilize Britain’s small and medium-sized businesses just as they are starting to find their footing.

The International Energy Agency has warned of “unprecedented shocks” following the effective closure of the Strait of Hormuz, a narrow shipping lane that until recently carried about a fifth of the world’s oil and gas. The destruction of electricity infrastructure across the Gulf has compounded the damage, leaving traders, shippers and manufacturers scrambling to absorb costs that were unimaginable six months ago.

The Paris-based agency now expects a shortfall of nearly 1.8 million barrels a day to materialize this year, a dramatic reversal from the 410,000-barrel surplus it forecast as recently as last month. The change occurred as the economic damage from the conflict reduced demand significantly.

“With global oil inventories already drawing at a record clip, further price volatility is seen ahead of the summer demand peak,” the IEA warned.

Global supply is forecast to fall by an average of 3.9 million barrels a day this year to 102.2 million, assuming tanker traffic on the route starts gradually from the end of June. Even on that optimistic basis, the market is expected to remain in deficit until the final quarter.

Markets have rallied since the outbreak of hostilities between the United States and Iran, with Brent crude, the international benchmark, reaching $126 a barrel from just $60 at the start of the year. On Wednesday evening Brent won a three-day high, falling 2 percent to $105.63 in its sharpest one-day exit in the week. Still, the benchmark is up 73.6 percent in the year to date, a move that has come from every corner of the British economy from shipping yards in the Midlands to fuel fronts on the south coast.

The IEA estimates that 246 million barrels have been taken from inventories since the war began, leaving a dangerously small buffer against further shocks. In March the organization, which represents 32 member countries, released 400 million barrels of strategic reserves as a “gap measure” in a concerted effort to bolster sentiment.

Manufacturers outside the Middle East have been struggling to close the gap. Forecasts for U.S. supply growth have been raised by more than 600,000 barrels a day since January, to 1.5 million barrels a day this year, with Texan shale operators and Brazilian deepwater producers leading the charge. It’s not enough. Global supply fell another 1.8 million barrels a day in April to 95.1 million, taking the total loss from February to 12.8 million barrels a day. The result from the Gulf states was affected by the closure of the strait using 14.4 million barrels per day below pre-war levels.

For Britain’s SME community, the second-order effects are arguably more punitive than the oil price itself. The IEA expects a recession, rising inflation, slow growth and a major squeeze on domestic budgets, to reduce global oil demand by 420,000 barrels a day this year. That compares with a forecast decline of just 80,000 barrels a day last month and an expected increase of 850,000 barrels a day before the start of the war. The immediacy of the retreat, instead of its full scale, with non-panic decisions.

“The increasing destruction of demand has been supported by the rise in oil prices since the start of the war,” the IEA said. “Slow economic growth in both OECD and non-OECD countries is also beginning to weigh on consumer and industrial spending.”

Fatih Birol, the agency’s executive director, last month described the current glut as the worst energy crisis the world has ever faced, surpassing the oil shock of the 1970s. “We are certainly facing the biggest electrical security risk in history,” he said.

For owner-managed businesses already reeling from high employment costs, stubborn inflation and weak consumer confidence, the message from Paris is sobering. With warnings that the conflict could push Britain to the brink of recession, the next quarter is shaping up to be the toughest test of SME resilience in a generation.