Why is the world fearing an "oil shortage" despite shrinking crude oil demand? A new phase of the Middle East crisis as indicated by the IEA

The International Energy Agency (IEA) released its oil market report for May 2026, indicating that the global energy market has entered a phase that cannot be explained by the usual economic cycles. As reported by THISDAY, the IEA projected that global oil demand in 2026 would decrease by 420,000 barrels per day year-on-year, averaging 104 million barrels per day. Normally, a decrease in demand would suggest a drop in prices or a loosening of the market. However, in this crisis, that conventional wisdom is less applicable.

The reason is simple: the loss in supply is greater than the drop in demand.

According to the IEA's outlook, global oil supply is rapidly dwindling due to the Middle East conflict and transit restrictions in the Strait of Hormuz. In April, global supply further decreased by 1.8 million barrels per day, dropping to 95.1 million barrels per day. The cumulative loss since February is estimated at 12.8 million barrels per day. Particularly in the Gulf oil-producing countries affected by the closure or restriction of the Strait of Hormuz, production has decreased by 14.4 million barrels per day compared to pre-war levels.

This is not merely a story of "rising crude oil prices." The flow of oil, which is akin to the lifeblood of the global economy, has suddenly thinned due to geopolitical risks, beginning to impact governments, businesses, and consumers worldwide.

The main cause of demand reduction is not just a "recession"

A notable point in the IEA's outlook is that the drop in demand is not limited to certain countries or industries. While the full-year decrease in 2026 is 420,000 barrels per day, the most severe impact is expected in the second quarter, with a year-on-year decrease of 2.45 million barrels per day. OECD countries account for a decrease of 930,000 barrels per day, while non-OECD countries account for a decrease of 1.5 million barrels per day.

The background to the demand decline includes soaring prices, economic slowdown, energy-saving measures, and supply constraints themselves. The petrochemical and aviation sectors are particularly hard hit. In petrochemicals, shortages of raw materials like naphtha lead to increased costs for resins, packaging materials, chemicals, textiles, and adhesives. In aviation, uncertainty in jet fuel supply and rising prices push up operating costs for flights, affecting both passenger and cargo services.

In other words, even though demand is decreasing, it is not because the global economy is naturally moving away from oil. High prices, scarce fuel, and uncertainty about the future are forcing companies and consumers to reduce usage or are unable to use it as they would like. This is not a healthy demand reduction but rather close to "demand destruction" caused by a crisis.

Why does the oil market shake when the Strait of Hormuz stops?

The Strait of Hormuz is one of the world's major energy transport routes, connecting the Persian Gulf and the Gulf of Oman. It is a strategic chokepoint for the transportation of crude oil, petroleum products, and LNG from Gulf countries like Saudi Arabia, Iraq, Kuwait, UAE, and Qatar. If restricted, it is not just a matter of some ships taking a detour.

The IEA explains that the cumulative supply loss from Gulf oil-producing countries due to tanker traffic restrictions through the Strait of Hormuz has exceeded 1 billion barrels. Moreover, even if the strait reopens, supply will not immediately return to normal. Restarting oil fields, repairing ports and refineries, reallocating tankers, normalizing insurance premiums, and restocking by buyers will all take time.

The market fears this time lag.

If the decrease in supply and demand were at the same pace, the market could maintain some balance. However, in this scenario, the scale of the supply shock is too large. The IEA predicts that global supply in 2026 will decrease by an average of 3.9 million barrels per day, reaching 102.2 million barrels per day. Meanwhile, demand is at 104 million barrels per day. Thus, even with reduced demand, supply shortages may persist.

This is the main reason why "prices do not fall despite shrinking demand."

Releasing stockpiles buys time but is not a solution

Countries are using strategic petroleum reserves and commercial inventories to support the market. IEA Executive Director Birol explained that the release of strategic reserves is supplying 2.5 million barrels per day to the market, while warning that reserves are not infinite. Commercial oil inventories are rapidly decreasing, with some views suggesting only a few weeks' worth remaining.

Releasing stockpiles is effective as a crisis response. It curbs price spikes, gives refineries and consuming countries time, and eases panic buying. However, it is not a fundamental supply recovery. Using reserves naturally reduces the capacity to prepare for the next crisis. Especially in the Northern Hemisphere, with increased demand for diesel, fertilizers, jet fuel, and gasoline due to spring farming, summer travel season, and logistics demand, further depletion of inventories could lead to more volatile prices.

This is why the IEA emphasizes the "possibility of further price volatility." The market is already reacting sensitively to news about ceasefire negotiations and the reopening of the Strait of Hormuz. Optimistic reports lower prices, while stalled negotiations or continued attacks raise them again. The crude oil market is swaying while incorporating not only supply and demand data but also diplomatic news, military information, maritime insurance, and inventory statistics.

Refinery issues ripple through gasoline, diesel, and jet fuel

If it were just a shortage of crude oil, it might seem like a problem for oil-producing or importing countries. However, the IEA is focusing on the pressure on refining capacity. The global refinery throughput in the second quarter of 2026 is predicted to decrease by 4.5 million barrels per day, reaching 78.7 million barrels per day. The full-year outlook is a decrease of 1.6 million barrels per day.

Crude oil cannot be used as gasoline, diesel, or jet fuel in its raw form. It must be refined at refineries and distributed as products to support economic activities. If Middle Eastern infrastructure damage, export restrictions, and raw material shortages overlap, not only crude oil prices but also petroleum product prices will soar. Especially middle distillates like diesel and jet fuel, which are directly linked to logistics, agriculture, aviation, military, and construction, will have widespread price increase impacts.

At this stage, the problem is not just "rising gasoline prices for cars." It affects food prices, airfares, delivery charges, plastic packaging, building materials, daily necessities, and pharmaceutical transportation costs, impacting every aspect of life. Energy crises often reach households as price crises.

On social media, the view that "supply shock is more serious than demand reduction" is prominent

 

Regarding the IEA report, three major reactions are observed on social media.

Firstly, among energy market participants, the view that "the market is not loosening despite reduced demand because the supply shock is too large" is spreading. On LinkedIn, multiple posts cite the IEA's figures, highlighting the simultaneous progression of supply reduction, inventory reduction, and restrictions in the Strait of Hormuz as problematic. Particularly, with the 2026 demand reduction limited to 420,000 barrels per day while supply losses reach millions of barrels per day, the narrative that "demand destruction cannot stabilize the market" is prominent.

Secondly, stakeholders in the supply chain and consumer goods industries are wary of the ripple effects on packaging materials, resins, aluminum, adhesives, and logistics costs, rather than crude oil prices themselves. A LinkedIn post pointed out that many consumer goods companies have not yet fully revised their procurement structures. This is due to the possibility of the crisis ending temporarily and the reality that restructuring supply chains takes 12–18 months, leading companies to postpone decisions. This is a particularly troubling issue for companies that have experienced the COVID-19 pandemic, Suez Canal disruptions, and the Ukraine crisis.

Thirdly, on X, Instagram, and Facebook, more emotional reactions are noticeable. Concerns about rising crude oil and fuel prices, doubts about government reserve releases, opinions advocating for a rapid transition to renewable energy and EVs, and conversely, opinions advocating for maintaining fossil fuel investments for energy security are mixed. In IEA's own social media posts and related news shares, words like "unprecedented supply shock," "record inventory reduction," and "importance of the Strait of Hormuz" are emphasized, indicating that energy issues are being perceived as a familiar theme not only by experts but also by general consumers.

The reactions on social media reflect not just dissatisfaction with high crude oil prices but also a growing concern that "the world's energy supply network may be more fragile than expected."

Neither oil-producing nor consuming countries have leeway

This crisis is not a simple tailwind for oil-producing countries either. While price increases seem to lead to increased revenue for oil-producing countries, those that cannot use the Strait of Hormuz cannot export even if they want to sell. Countries with alternative routes or those that can supply from the Atlantic side may benefit, but not all oil-producing countries will profit equally.

The IEA notes that increased exports from the Atlantic basin, including the US, Brazil, Canada, Kazakhstan, and Venezuela, are partially compensating for the shortage. However, it is still insufficient to completely cover the supply lost from the Middle East. Additionally, politically complex issues, such as handling Russian crude oil and temporary easing of sanctions, are also involved.

Consuming countries are also struggling. Releasing reserves to curb price hikes reduces preparedness for the next crisis. Subsidizing fuel prices increases fiscal burdens. If energy prices rise while interest rates remain high, central banks face a dilemma between inflation control and economic support.

Thus, this oil crisis is not a simple "oil-producing countries vs. consuming countries" scenario but a crisis that imposes costs on all countries.

What are the risks for Japan?

For Japan, this issue is not just distant Middle Eastern news. Japan relies heavily on imports for its energy resources and has a high dependency on the Middle East for crude oil imports. Restrictions in the Strait of Hormuz directly increase procurement risks. If combined with a weak yen, the rise in import prices becomes even more significant.

The impact is not limited to gasoline prices. It spreads to costs in electricity, logistics, food, aviation, chemicals, and manufacturing. Especially for small and medium-sized enterprises, it is often difficult to immediately pass on the increased costs of fuel and raw materials. Households will also feel the burden through rising prices of gasoline, electricity, groceries, and daily necessities.

More importantly, corporate procurement strategies are at stake. The global supply chain has been designed to maximize efficiency. However, amid repeated pandemics, wars, and maritime disruptions, efficiency alone is no longer sufficient. Having multiple sources of supply, maintaining larger inventories, and considering alternative materials and fuels, even at higher costs, are becoming crucial for corporate survival.

The social media reaction emphasizing "buffers are finite" applies to Japanese companies as well. If the crisis ends in the short term, excessive responses become costly. However, if the crisis prolongs, the cost of not responding becomes even greater.

Decarbonization and energy security do not conflict

In response to this crisis, opinions are divided between increasing investment in fossil fuels and accelerating the transition to renewable energy. However, decarbonization and energy security are not mutually exclusive.

In the short term, stable oil and gas supply is essential. There are many sectors, such as aviation, shipping, chemicals, agriculture, and heavy industry, that cannot be immediately replaced. Stockpiling, diversifying transport routes, maintaining refinery operations, and international cooperation are indispensable.

In the medium to long term, it is necessary to change the structure that overly depends on specific regions' straits and oil-producing countries. Renewable energy, batteries, electrification, energy efficiency, synthetic fuels, biofuels, and demand management are not only climate change measures but also means to reduce geopolitical risks.

The IEA report indicates that the oil crisis did not occur because decarbonization progressed, but because the world still heavily relies on oil, causing the global economy to shake with the disruption of a single strait.

The future focus is on "Hormuz reopening" and "inventory bottoming out"

The market is most closely watching when and to what extent the transit through the Strait of Hormuz will recover. The IEA's outlook assumes that the flow will gradually resume from June onwards. However, even if transit resumes, it will take time for the supply network to normalize. If reopening is delayed, further depletion of inventories will increase the risk of price spikes.

Another focus is the capacity of commercial inventories and strategic reserves. While reserves provide market reassurance, continued depletion becomes a source of anxiety. If inventories rapidly decrease during the summer demand season and shortages in the product market become severe, not only crude oil prices but also gasoline, diesel, jet fuel, and petrochemical raw material prices could rise consecutively.

The IEA's warning is not mere pessimism. In reality, supply is decreasing, inventories are depleting, refineries are constrained, and consumers are forced to economize. The market is prioritizing the intense risk of supply chain disruption over the seemingly bearish factor of demand reduction.

Conclusion: The oil market crisis is a crisis of "trust," not just price

The biggest message from the IEA report is that the global oil market is losing not only "quantity" but also "trust."

Demand will decrease by 420,000 barrels per day. Yet, the supply shortage will not be resolved. Higher prices may curb consumption. However, the fuel needed for essentials, logistics, aviation, agriculture, and chemical products will not easily disappear. Releasing reserves buys time. But it also depletes future safety margins.

The anxiety and discussions spreading on social media intuitively reflect this structure. People are not just saying "crude oil is expensive." They are beginning to realize that the energy supply network the global economy has relied on can be significantly shaken by the collapse of any one factor—war, straits, inventories, refineries, logistics, or policy decisions.

The 2026 oil market presents a paradoxical situation where shortages persist despite decreasing demand. At the center of this contradiction are the Middle East crisis and the Strait of Hormuz. Even if a ceasefire or transit reopening is achieved, the vulnerability exposed this time will not disappear.

What the world needs is not simply to increase crude oil or endure consumption. It is to simultaneously advance short-term supply stability and medium- to long-term energy structural transformation. The IEA's numbers indicate that the grace period is not very long.

---

Source URL

THISDAYLIVE: Reporting on IEA's 2026 global oil demand outlook, Middle East crisis, supply reduction, and refining throughput decline.
https://www.thisdaylive.com/2026/05/19/iea-global-oil-demand-to