IEA Predicts Significant Oil Surplus in 2027 After Hormuz Recovery

The International Energy Agency (IEA) has forecast a significant oil supply surplus in 2027 after recovering from the closure of the Strait of Hormuz, according to its monthly oil market report released on Wednesday. The U.S. and Iran have announced an interim agreement to end their war, which includes Iran reopening the strait and the U.S. lifting its naval blockade of Iran.

This deal potentially brings an end to the largest oil supply disruption in history, with the war estimated to have blocked more than 14 million barrels per day (bpd) of Middle East oil output. The IEA reports that if the deal holds, exports and production from the Gulf should see a gradual recovery. "If the deal holds, exports and production from the Gulf should see a gradual recovery – not least because Iranian oil exports can fully resume once the U.S. blockade is lifted," the agency said.

The IEA predicts that the oil market will fall into a significant supply overhang next year, with oil supply set to surge by 8 million bpd while demand rises by just 2 million bpd. This forecast implies that supply will outweigh demand by 5.05 million bpd in 2027, as demand growth is overshadowed by supply ramping up as Middle East barrels return.

Flows through the strait were already rising by early June due to a pick-up in ship-to-ship transfers in the Gulf of Oman. However, political and operational constraints, including prolonged demining and unresolved transit arrangements, leave downside risks to the Middle East recovery outlook. The IEA also forecasts oil supply to fall by 3.9 million bpd in 2026 as production losses in the Middle East outpace rising output from the Americas.

Russian crude oil and refined fuel exports remained stable at around 7.4 million bpd in May despite continued Ukrainian drone attacks on refineries. Global oil demand is expected to fall by 1.1 million bpd this year, according to the IEA, after a 5 million bpd drop from April to June.

The global oil market tipping into a large surplus in 2027 could provide a welcome respite to the market and an opportunity to replenish depleted inventories or build new strategic reserves. However, oil inventories could plunge further to historic lows before the market balance shifts to a surplus towards the end of this year.

In other developments, the International Monetary Fund (IMF) chief Kristalina Georgieva stated that the world economy is weathering the shock of the war in the Middle East with no signs yet of a global slowdown. She welcomed the agreement by the U.S. and Iran to end their war and reopen the Strait of Hormuz but warned that an intensification of the conflict and supply disruptions posed a clear risk to global growth.

The IMF will release an updated global growth forecast on July 8, with its middle "adverse scenario" calling for a slowdown to 2.5% in 2026 and headline inflation of 5.4%. Georgieva suggested the IMF may revert to its reference scenario, which assumed a short-lived Iran war and projected growth of 3.1% in 2026.

Global stock markets surged and oil prices slid on Monday after the United States and Iran agreed on a preliminary peace deal. The memorandum of understanding should see the Strait of Hormuz reopen following more than three months of near-total disruption that upended the global energy market.