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Demand destruction tempers oil rally despite Hormuz disruption
According to the International Energy Agency, global oil demand is now expected to shrink by about 80,000 bpd in 2026, reversing an earlier forecast for growth of 730,000 bpd before the conflict
- PUBLISHED: Thu 23 Apr 2026, 7:49 PM
Global oil markets are facing one of the most unusual supply shocks in modern history, with demand destruction accelerating even as a massive loss of crude flows tightens the physical market and reshapes long-term price expectations.
The effective closure of the Strait of Hormuz since late February has removed an estimated 10–13 million barrels per day (bpd) of supply — roughly 12 per cent of global output — triggering the sharpest disruption to energy flows since the 1970s oil crises. Yet instead of sending prices sharply and sustainably above $100 a barrel, the shock has been partly offset by a rapid contraction in consumption across major importing regions.
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According to the International Energy Agency, global oil demand is now expected to shrink by about 80,000 bpd in 2026, reversing an earlier forecast for growth of 730,000 bpd before the conflict escalated. The downgrade reflects widespread fuel conservation measures, refinery cutbacks and weakening transport activity across Asia and Europe.
Traders estimate the scale of demand destruction is far larger in the short term. Energy merchant Vitol says consumption may already have fallen by as much as 4–5 million bpd, while the IEA estimates a contraction of roughly 2.3 million bpd in April alone — the steepest decline outside the Covid-era collapse.
Fuel price surge
The primary driver is the surge in refined fuel prices. Diesel and jet fuel costs briefly exceeded $200 per barrel equivalent, forcing airlines to cut routes, shipping firms to slow operations and governments to introduce emergency conservation policies ranging from fuel rationing to remote work mandates. Several Asian economies, which depend heavily on Middle Eastern crude for up to 60 per cent of imports, have reduced refinery runs by about 6 million bpd as feedstock shortages deepened.
The impact is now spreading into Europe, where Middle Eastern suppliers account for roughly 10 per cent of crude imports and more than half of jet fuel demand. Inventories across parts of the region have dropped to critically low levels, prompting contingency planning by transport ministries and warnings about tightening aviation fuel supplies.
Paradoxically, this demand destruction has helped prevent prices from rising even further despite the historic scale of supply losses. China, the world’s largest crude importer, has cushioned the shock by drawing on strategic and commercial stockpiles estimated at between 1 billion and 1.2 billion barrels while also reselling cargoes into the market.
According to Ole Hansen of Saxo Bank, softer demand — particularly across Asia — has played a central role in stabilising prices even as flows through Hormuz remain severely constrained.
“Oil prices continue to whipsaw,” Hansen said, noting that headline-driven optimism around ceasefire extensions has repeatedly reversed as uncertainty over enforcement persists and tanker movements remain disrupted.
No immediate relief
Even if the Strait reopens soon, analysts warn the recovery in effective supply will not be immediate. Tankers are out of position, refinery infrastructure across parts of the Gulf remains under assessment and storage facilities must first be drawn down before upstream production can restart at scale. More than 500 million barrels of lost output could eventually approach 1 billion barrels before normalisation begins.
These logistical bottlenecks are expected to keep refined-product markets tight, particularly diesel, jet fuel and petrochemical feedstocks, even if crude benchmarks remain temporarily capped by weak consumption.
At the same time, the longer-term implications of the conflict could paradoxically strengthen oil demand rather than weaken it. Governments are already increasing strategic stockpiling, accelerating domestic supply investments and expanding defence-related fuel consumption — all structural drivers of higher future energy use.
The crisis is also reinforcing fragmentation in global supply chains. Instead of a more efficient, globally integrated energy system, analysts expect a shift toward redundancy, duplication and regionalisation — trends that typically increase overall hydrocarbon demand.
For markets, the key takeaway is that demand destruction has temporarily masked the severity of the supply shock rather than eliminated it. Once inventories are depleted and conservation measures ease, prices could face renewed upward pressure, particularly if geopolitical risks persist or infrastructure damage delays the return of Gulf exports.
Even in a scenario where flows through Hormuz resume gradually, traders expect the conflict to lift the long-term price floor for crude by $10 to $15 per barrel compared with pre-war levels — underscoring how a short-term collapse in demand may ultimately translate into a tighter energy market over time.
