Iran War Oil Crisis: 43% of Global Supply at Risk
Iran war puts over 43% of global oil supply under pressure as Hormuz disruptions, falling stocks and refinery outages tighten fuel markets.
Raja Awais Ali
8/25/20265 min read
Iran War Puts More Than 43% of Global Oil Supply at Risk
Six months into the Iran war, the global oil market is facing one of its most serious supply disruptions in decades. More than 43% of the world's oil supply now comes from countries affected by conflict, sanctions or major disruptions. Countries affected by the conflicts in Iran, Russia, Ukraine and Libya, along with US restrictions on Venezuelan oil exports, produced around 45 million barrels per day in 2025. That represents more than 43% of global oil supply, according to calculations based on International Energy Agency data.
The current crisis began after US and Israeli attacks on Iran six months ago and has since created major problems for global energy markets. The conflict has affected oil production, refining and transportation, while the Strait of Hormuz has become a major source of uncertainty. Around 5 million to 7 million barrels per day of Gulf oil flows are currently affected, according to estimates cited by Reuters. Saudi Arabia has redirected some oil toward the Red Sea, while some Gulf exporters continue moving limited volumes through the Strait of Hormuz. These measures have helped maintain some supply, but they have not removed the wider risk to global oil flows.
The danger is not limited to the Gulf. The Russia-Ukraine war has also affected oil production and refining, while Ukraine has targeted Russian refineries at considerable distances from Ukrainian-held territory. One example is the Omsk refinery, located about 2,700 kilometers from Ukrainian-held territory. Damage to Russia's refining network has contributed to domestic fuel shortages, prompting Moscow to restrict gasoline and diesel exports. These restrictions have further tightened international fuel markets at a time when supplies are already under pressure.
The latest IEA figures show the scale of the disruption. Global oil supply increased by 2.4 million barrels per day in July to 101.5 million barrels per day, but it was still 6.3 million barrels per day below the level of a year earlier. Gulf oil production also remained 8.3 million barrels per day below pre-war levels. Although some production has returned, renewed attacks and shipping problems have prevented the market from returning to normal. The IEA now expects global oil supply to decline by an average of 4.3 million barrels per day in 2026.
Refining has become another major problem. Global refinery crude processing reached 80.9 million barrels per day in July, but remained almost 5 million barrels per day below the same period last year. Disruptions in the Middle East and attacks on Russian refineries have reduced available refining capacity, leaving the market with less ability to turn crude oil into gasoline, diesel and jet fuel. Global refining capacity affected by the Gulf and Ukraine conflicts is estimated at about one-tenth of the total.
This shortage of refined fuel is becoming particularly important. A country can have access to crude oil but still face a shortage of diesel or gasoline if refineries are unavailable or fuel cannot be transported. Asia has already experienced a significant reduction in imports of refined products. Diesel, jet fuel and gasoline supplies have been affected by lower exports from major producing and refining regions, increasing pressure on fuel markets. Reuters reported that Asian refined-product imports were about 21% below levels before the February conflict.
Global oil inventories are also falling. The IEA reported that observed oil stocks dropped by 69 million barrels in July. Total observed inventories fell below 7.9 billion barrels, while stocks have declined by around 410 million barrels since the start of the war. That represents an average reduction of about 2.7 million barrels per day. Emergency oil reserves released by the IEA have helped reduce the immediate impact of the supply shock, but those reserves are now largely being used while global inventories continue to decline.
Oil prices have responded to the changing supply outlook. North Sea Dated crude rose by $25.67 per barrel during July and ended the month at $96.80 per barrel. Prices traded in an unusually wide range of almost $40 per barrel during the month as traders reacted to developments in the war and changes in oil and fuel supplies. By August, prices had moved back toward the $90 range. On August 25, Brent crude fell to about $91.82 per barrel and US West Texas Intermediate dropped to around $84.60 after investors judged new US sanctions against Iran to be less threatening to immediate oil supply than further military action.
However, lower prices do not mean that the supply problem has ended. The market remains highly sensitive to any new disruption around the Strait of Hormuz. The waterway is one of the world's most important oil shipping routes, and alternative export capacity is limited. Saudi Arabia and the United Arab Emirates have pipelines that can bypass the Strait, but the available capacity is not enough to fully replace normal flows through the waterway.
The situation is also affecting global oil demand. The IEA now expects worldwide oil demand to decline by an average of 1.6 million barrels per day in 2026. Demand is projected to contract by 4.9 million barrels per day in the second quarter and 2.8 million barrels per day in the third quarter before returning to growth of around 580,000 barrels per day in the fourth quarter. Higher fuel prices and continued disruption to international supply chains are among the main reasons for the weaker demand outlook.
The global oil balance is expected to remain under pressure during the third quarter. The IEA estimates a deficit of around 1.8 million barrels per day in 3Q26, more than twice its previous estimate of about 800,000 barrels per day. At the same time, tighter fuel markets have pushed refining margins to record levels in some regions. Diesel, jet fuel and gasoline markets are particularly sensitive because available refined supplies have fallen while inventories remain low.
The effects are spreading beyond oil producers and traders. Higher diesel and gasoline prices increase transportation costs, while expensive jet fuel raises costs for airlines. Manufacturers and other businesses can also face higher operating and distribution expenses. When energy costs remain high for an extended period, they can add pressure to consumer prices and make it harder for governments and central banks to manage inflation.
The United States has become more important as other major oil-producing regions face disruptions. US oil supplies have helped reduce some of the pressure on international markets, although severe weather has occasionally affected American production as well. This has increased the importance of a diversified global supply network, but it has not removed the risks created by the conflicts affecting major oil-producing and refining regions.
The latest developments on August 25 have added another layer of uncertainty. The United States has expanded sanctions against Iran, while Tehran has warned that it could retaliate and disrupt Gulf oil exports. At the same time, efforts to improve the situation around the Strait of Hormuz have yet to produce a stable solution. Any major escalation could quickly affect oil shipments and push prices higher again.
The current crisis is therefore larger than a simple shortage of crude oil. Production losses, refinery outages, shipping restrictions and falling inventories are all happening at the same time. Iran, Russia, Ukraine, Libya and Venezuela are contributing to a global energy market in which more than 43% of 2025 oil production came from countries affected by conflict or related restrictions. Around 45 million barrels per day of production came from these countries, while Gulf oil flows affected by the current disruption are estimated at 5 million to 7 million barrels per day.
For the global oil market, the next major question is whether normal shipping through the Strait of Hormuz can return and whether inventories can begin to recover. If supply routes improve, pressure on prices and fuel markets could gradually ease. If disruptions continue while inventories keep falling, the shortage of refined fuels could remain a bigger concern than crude oil itself. As of August 25, 2026, the combination of conflict, restricted oil flows, lower refining capacity and falling inventories continues to leave the global energy market vulnerable to another major supply shock.
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