Renewed fighting between US and Iran threatens projected 2027 oil glut, energy agency warns

Fresh hostilities between the United States and Iran could unravel projections for a substantial oil market surplus next year, the International Energy Agency warned on Friday, even though global oil supply rose sharply in June after the Strait of Hormuz reopened.

The Strait’s reopening last month followed a ceasefire that Washington and Tehran signed on June 18, bringing a pause to a war that began in late February and had caused what the agency described as the largest disruption to oil supply in the market’s history. Global oil production climbed by 4.1 million barrels per day in June as a result, though output remained 9.4 million barrels per day below levels recorded before the conflict began.

That recovery now faces serious doubt after fighting resumed on July 7 and July 8, when President Trump declared the ceasefire finished and ordered fresh strikes following Iranian attacks on commercial vessels attempting to pass through Hormuz earlier in the week.

The agency said the escalation that unfolded on those two days clouds the broader outlook and could overturn its forecast for a market shift toward surplus next year. Officials at the agency described a durable peace agreement as essential if markets hope to return to normal functioning.

Assuming producers can resume full field operations and refiners return to standard supply patterns, the agency’s 2027 forecast points to a market where supply exceeds demand by 4.62 million barrels per day, a sharp reversal from the 860,000 barrel per day deficit expected this year. Supply levels are projected to rise by 7.5 million barrels per day next year, following a contraction of 3.7 million barrels per day last year, though that projection depends entirely on whether the Hormuz passage can sustain improved flow. Global oil demand is expected to fall by 1 million barrels per day this year before rising by 2 million barrels per day in 2027.

Crude exports have rebounded from earlier disruptions, but refining activity and exports of refined products have struggled to keep pace with that recovery, creating a tighter market for finished fuels even as crude production becomes more abundant. This imbalance pushed refining margins to four year highs by early July, according to the agency, as market concerns shifted away from jet fuel shortages toward tightening gasoline and diesel supplies.

Diesel markets across the Atlantic basin have tightened rapidly in recent weeks, driven by limited production capacity in the Middle East combined with reduced Russian exports following attacks on refining facilities inside Ukraine. Analysts tracking the diesel market say the combination of constrained Middle Eastern output and disrupted Russian supply chains has left European and American buyers competing for a shrinking pool of available product, a dynamic that could keep prices elevated even if crude supplies continue to recover.

The agency’s warning arrives at a delicate moment for global energy markets, which had begun adjusting to expectations of looser supply conditions following the June ceasefire. Oil traders and refiners had started planning around the assumption that Gulf production would continue climbing steadily toward pre war levels, a trajectory that the renewed fighting now places in serious question. Should hostilities persist or intensify further, analysts expect the agency to revise its 2027 surplus forecast downward, potentially reversing months of gradual market stabilization.

The Strait of Hormuz remains central to any recovery in global oil supply, since the waterway carries a substantial share of crude and liquefied natural gas exports from major Gulf producers, including Saudi Arabia, the United Arab Emirates, Kuwait and Qatar. Continued disruptions to shipping through the strait, whether from direct attacks on vessels or broader security concerns tied to the conflict, threaten to slow the pace at which regional producers can restore output to levels seen before the war began.

Refining capacity constraints add another layer of uncertainty to the outlook, since even a full recovery in crude production would not immediately resolve tightness in gasoline and diesel markets if refineries cannot process that crude quickly enough to meet demand. The agency’s data suggests that this gap between crude availability and refined product supply has already begun reshaping global fuel prices, independent of the security situation in the Gulf.

With both the ceasefire’s collapse and the broader trajectory of the conflict still unresolved, the agency’s 2027 outlook now carries significantly more uncertainty than it did just weeks ago, when the June ceasefire had raised hopes for a steady return to pre war production levels across the region.