The global oil market could move from a severe supply crunch to a sizeable surplus next year as Gulf producers restore output following the recent US-Iran peace agreement, according to the latest monthly report from the International Energy Agency (IEA).
The Paris-based agency said the disruption caused by the conflict involving Iran reduced both oil production and global demand, but the expected recovery in exports from the Gulf region may create an oversupplied market in 2027.
The IEA forecasts that global oil supply could increase by about 8 million barrels per day (bpd) next year, while demand is projected to grow by only around 2 million bpd. As a result, the market could face a surplus exceeding 5 million bpd, one of the largest imbalances seen in recent years.
The outlook is based on the successful implementation of the interim peace agreement between the United States and Iran, which includes the reopening of the Strait of Hormuz and the removal of the US naval blockade that had restricted regional oil exports.
Only weeks ago, concerns about prolonged disruptions in Gulf energy supplies had pushed oil prices above $110 a barrel and raised fears of a slowdown in the global economy. The latest projections suggest a very different scenario, with abundant supplies expected to return to international markets.
According to the agency, the market could shift quickly from tight supply conditions to excess production if Middle Eastern output recovers as anticipated. Millions of barrels currently constrained by conflict-related disruptions could return at a time when global demand growth is weakening.
The IEA also lowered its forecast for oil consumption growth in 2026. Demand is now expected to increase by 1.1 million bpd this year, a reduction of 700,000 bpd from the agency’s previous estimate. Economic uncertainty, disrupted trade flows, higher shipping costs and weaker industrial activity have all contributed to slower fuel consumption.
During the second quarter, global oil deliveries fell by nearly 5 million bpd as geopolitical tensions affected trade and economic activity in several major markets.
While demand growth has softened, supply prospects have improved significantly. The agency estimates that more than 14 million bpd of Middle Eastern production constrained by the conflict could gradually return as export routes reopen. Oil flows through the Strait of Hormuz have already begun to recover, reaching about 12 million bpd in early June as shipping activity resumed.
The return of Gulf production is expected to benefit major exporters including Saudi Arabia, the UAE, Kuwait and Iraq. However, analysts caution that a large surplus could place sustained pressure on oil prices and create new challenges for oil-producing nations that rely heavily on energy revenues.
The IEA said the pace of recovery will depend on the durability of the peace agreement, the reopening of shipping lanes and the completion of security and demining operations in the Strait of Hormuz. Any renewed tensions could alter the outlook, but current projections suggest that concerns about excess supply may soon replace fears of shortage in the global oil market.
