The escalating conflict in the Middle East is triggering what could become the largest oil supply disruption in modern market history, according to the International Energy Agency (IEA), as tanker traffic through the Strait of Hormuz collapses and Gulf producers are forced to slash output.

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In its March 2026 Oil Market Report released Thursday, the agency said crude and refined product flows through the strategic waterway have fallen dramatically—from about 20 million barrels per day (mb/d) before the outbreak of hostilities to only minimal volumes today.

The sudden drop has forced oil producers across the Persian Gulf to curb production as storage tanks fill and export routes remain largely inaccessible.

Massive Supply Curtailments

The IEA estimates that at least 10 mb/d of oil supply has already been curtailed, including roughly 8 mb/d of crude and 2 mb/d of condensates and natural gas liquids. Producers are struggling to move cargoes to market as shipping activity in the region grinds to a halt.

“The war in the Middle East is creating the largest supply disruption in the history of the global oil market,” the agency warned.

The crisis centers on the near-total collapse of tanker movements through the Strait of Hormuz, the narrow maritime corridor that normally handles around one-fifth of global oil trade.

Security threats, repeated attacks on merchant vessels, and soaring war-risk insurance premiums have made the route increasingly untenable for shipowners.

As a result, major producers including Saudi Arabia, Iraq, Kuwait, the United Arab Emirates, and Qatar have begun sharply cutting output as export terminals struggle to load cargo.

The agency now projects global oil supply could fall by around 8 mb/d in March, though some of the losses may be partially offset by increased output from countries such as Kazakhstan and Russia following earlier disruptions.

Refining Sector Disruptions

The turmoil is also hitting refining operations across the Gulf.

More than 3 mb/d of refining capacity has already gone offline due to security threats, direct attacks, or the lack of export outlets as tanker movements stall.

Before the crisis, Gulf producers exported about 3.3 mb/d of refined petroleum products and 1.5 mb/d of liquefied petroleum gas (LPG)—flows that are now largely frozen.

The IEA warned that diesel and jet fuel markets could face particularly severe shortages if refinery outages continue. Meanwhile, limited LPG supplies and petrochemical feedstocks are already forcing some industrial facilities to reduce output.

Record Emergency Oil Release

In response, IEA member countries agreed on March 11 to release 400 million barrels of oil from emergency reserves, marking the largest coordinated stock release ever organized by the agency.

The United States will account for a significant portion of the move, releasing 172 million barrels from the Strategic Petroleum Reserve (SPR) starting next week. The drawdown is expected to take roughly 120 days to complete.

Global oil inventories currently total about 8.2 billion barrels, their highest level since early 2021. Roughly half of these stocks are held in OECD countries, including approximately 1.25 billion barrels in government strategic reserves.

While the emergency release is intended to cushion immediate market disruptions, the IEA cautioned that it will only provide a temporary buffer if shipping through the Strait of Hormuz remains blocked.

Oil Prices Surge

Oil markets have been highly volatile since United States and Israel launched airstrikes on Iran on February 28, sparking a widening regional conflict and a series of attacks on commercial vessels.

Brent crude prices briefly surged toward $120 per barrel before retreating to around $92, still roughly $20 higher than pre-conflict levels. On March 12, Brent settled at $98.21 per barrel, up 6.77% in a single day.

Fuel markets—including diesel, jet fuel, and LPG—have experienced even sharper spikes as refinery outages and export disruptions tighten supply.

Demand Outlook Weakens

While supply losses dominate the market outlook, the conflict is also weighing on global oil demand.

The IEA estimates that widespread flight cancellations across the Middle East and disruptions to LPG supply chains will reduce global oil consumption by roughly 1 mb/d during March and April.

As a result, the agency has trimmed its 2026 global oil demand growth forecast to 640,000 barrels per day, down 210,000 b/d from its previous projection.

Shipping Remains the Critical Factor

Despite the unprecedented emergency stock release, the IEA said the trajectory of global oil markets will largely depend on whether commercial shipping can safely resume operations through the Strait of Hormuz.

“Adequate insurance mechanisms and physical protection for shipping are key to the resumption of flows,” the agency said.

Until maritime traffic can return to normal, the world’s most critical oil transit route remains effectively paralyzed—leaving global energy markets exposed to what could become the most severe supply shock in modern oil market history.