Emergency reserves offer only short-term relief
Global oil market expectations for 2026 have reversed after the Iran conflict disrupted supply, with analysts now forecasting a 750,000 bpd deficit instead of the 1.63 million bpd surplus projected last year.
The shift captures how quickly the conflict has altered an oil market that entered the year with rising inventories and expectations of ample supply. A Reuters poll of eight analysts now points to average annual production losses of 2.13 million bpd this year, with the steepest shortfall expected in the second quarter at about 3 million bpd before the market returns to a projected 1.4 million bpd surplus in the fourth quarter.
The conflict began on February 28 following U.S. and Israeli strikes on Iran. Since then, attacks on energy assets, production shut-ins and a near halt in tanker traffic through the Strait of Hormuz have changed supply assumptions.
The strait carries about 20% of global oil consumption, making it the world’s most critical crude transit route.
Disruptions erase earlier surplus outlook
The International Energy Agency said the war has caused the largest supply disruption in the history of the global oil market, with crude and product flows through Hormuz falling from about 20 million bpd before the conflict to a trickle. Gulf producers have cut at least 10 million bpd of output because storage is filling up and export routes remain blocked.
By the end of March, the IEA estimated the conflict had reduced oil supply by about 11 million bpd. ANZ bank said in an April 9 note that roughly 9 million bpd of crude supply had been effectively removed from the market. Global oil supply was about 106.6 million bpd in January, according to the IEA.
The IEA said in its March report that non-OPEC+ producers could still lift average global supply by 1.1 million bpd in 2026, though the near-term losses tied to the conflict have changed market balances.
Analysts said the scale and duration of the deficit will depend on how long shipping restrictions persist and how quickly production and exports can recover.
Bottlenecks extend supply risks
Despite a ceasefire announced Tuesday, traders said there are still no clear signs of sustained shipping recovery through Hormuz.
Vikas Dwivedi, global energy strategist at Macquarie Group, said about 136 million barrels of crude oil and products are stranded in the Gulf because of the conflict.
He said clearing that backlog will take time. Shipping companies still face insurance issues, sanctions concerns and operational bottlenecks, while reports suggest Iran may impose transit fees on ships using the strait.
"Issues include insurance and the risk of violating sanctions (by) transacting with Iran if tolls are paid," Dwivedi said.
Restoring flows also depends on tanker insurance, crew safety and the challenge of clearing delayed vessels through a narrow waterway. It said very large crude carrier freight rates have risen to more than six times their five-year average since February 28.
According to Deloitte, spare pipeline capacity outside Hormuz is limited. Saudi Arabia and the United Arab Emirates can reroute some shipments, but bypass capacity totals only about 2.6 million bpd, leaving much of the disrupted supply exposed to shipping delays.
Emergency reserves offer a buffer
The supply shock has already lifted price expectations. Reuters’ monthly poll last month showed analysts raised their 2026 Brent forecast by about 30% to $82.85 per barrel. Oil prices have risen about 50% since the conflict began.
Member countries agreed on March 11 to release 400 million barrels from emergency reserves, the largest coordinated release on record. The move provides a buffer, but it remains a stop-gap measure if shipping disruptions continue. Global observed oil and product inventories stood at more than 8.2 billion barrels in January, the highest level since February 2021.
Canada faces limited short-term options
The disruption has also renewed discussion in Canada about supply resilience. Canada does not maintain a strategic petroleum reserve because it is a net exporter and therefore is not required under IEA rules to hold emergency stocks.
Still, supplemental reporting said Canada has limited room to raise production quickly in response to a global supply shock. Commodity Context founder Rory Johnston said that while global reserve releases may help ease some pressure, they are not enough to replace the barrels lost through Hormuz. He said Canada cannot quickly add supply in the current situation.
Richard Masson, former CEO of the Alberta Petroleum Marketing Commission, also said there is little short-term flexibility, noting that Canadian producers already operate near full capacity. While some Canadian crude has seen stronger demand from buyers seeking alternatives, any additional supply response would likely be modest.
Recovery remains uneven
Analysts said restoring production to pre-war levels may take months, depending on infrastructure damage and how quickly shipping routes stabilize.
ANZ said 2 million to 3 million bpd could return in the first month after export flows resume, with another 2 million to 3.5 million bpd potentially returning during the rest of the second quarter.
"However, operational friction, damaged infrastructure and export bottlenecks mean recovery is unlikely to be smooth," ANZ said.
The bank also said 1 million to 2 million bpd of production capacity could remain offline or constrained even after the war, which would leave the market tighter and keep price swings elevated.
