Global energy markets are moving through a stretch that few analysts expected even a year ago. The International Energy Agency now projects that world oil demand will fall by 1 million barrels a day this year compared with 2025, which would mark the first annual decline since 2020, when the pandemic emptied roads and skies around the world. This time, the cause has nothing to do with a health crisis and everything to do with a war that has choked off one of the planet’s most important shipping lanes.
The Strait of Hormuz sits at the center of that story. About 25% of the world’s seaborne oil trade passed through the narrow waterway in 2025, connecting major Gulf producers such as Saudi Arabia, Iraq, Kuwait, Qatar and Iran with buyers across Asia and beyond. Only Saudi Arabia and the United Arab Emirates have pipelines capable of rerouting meaningful volumes around the strait, leaving most Gulf exporters with few alternatives once fighting closed the passage in late February.
The demand picture has shifted in stages as the conflict evolved. The IEA’s latest report shows the annual contraction easing from 4.8 million barrels a day in the second quarter of this year to 1.7 million barrels a day in the third quarter, before turning into growth of 1.2 million barrels a day in the fourth quarter. Taken together, that leaves the full year down by roughly 1 million barrels a day, with the agency forecasting a rebound of 2 million barrels a day in 2027, a pace of expansion still well below historical norms.
Prices have mirrored that volatility. Brent crude averaged $85 a barrel in June before slipping below $71 in early July, according to the U.S. Energy Information Administration. That calm did not last. After the ceasefire between the United States and Iran was breached on July 7 and 8, President Trump said at the NATO summit in Ankara, Turkey, that the truce was “over,” and Brent jumped more than 5% to settle near $78 a barrel that day, with West Texas Intermediate climbing to roughly $73.50. By Friday, prices had eased again, with Brent futures for September delivery trading around $76 and WTI holding near $72.
Toril Bosoni, the IEA’s head of oil markets, told CNBC’s “Squawk Box Europe” that she does not expect a smooth path forward. She described the situation in the region as very uncertain and unstable, and said any recovery would not be swift or linear. Still, she noted that stronger output from producers outside the Gulf, combined with softer demand than the agency had anticipated before the war, could push the market back toward surplus by the end of the year and into 2027, offering countries a chance to rebuild depleted inventories.
That surplus scenario depends heavily on politics rather than economics. Washington has said it remains open to technical talks with Tehran, even as the two countries continue trading strikes. Trump has called Iran’s attacks on commercial vessels acts of terrorism, and his declaration that the ceasefire had ended came just days after the two sides appeared to be inching toward de-escalation.
For now, the oil market is caught between two competing signals. Supply chains are healing faster than they were during the worst weeks of the war, and refiners are gradually restarting operations that had been shut for months. At the same time, each new round of hostilities in the Gulf threatens to undo that progress within days. The IEA has been direct about what it will take to avoid another shock: a durable peace agreement and a Strait of Hormuz that stays open, not just for a few weeks, but long enough for producers, refiners and shippers to plan around it with any real confidence.
