Supply shock: The Iran war will change the oil market forever

May 14, 2026 — 11:59am

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There’s an increasing imbalance of global oil supply and demand as the war in the Middle East drags on. With global oil inventories depleting at a record rate to fill the gap, it could take months, if not years, to return the market to something resembling its pre-war state.

According to the International Energy Agency’s latest Oil Market Report, released this week, even if the war were to end next month, it would take until the final months of the year before supply recovered to the point where it could get close to meeting demand.

With inventories being drawn down so rapidly, that means more price volatility – and probably prices that remain higher for longer – even if the war, currently at a stalemate, were to end soon.

If the US is unable to devise a pathway out of the morass that its decision to launch the attack on Iran with Israel has created, then the gap between supply and demand will widen further, of course, prices will remain high, and oil product shortages will continue to deteriorate.

Given that the impact of the war is already showing up in higher energy and food prices and spikes in inflation and interest rates around the world, the longer the war continues, the more destructive its economic effects will be.

In the US, for instance, data released this week showed consumer price inflation is up 1.4 percentage points since the war began. On Wednesday, US producer price data showed wholesale inflation leaped 6 per cent last month, its highest level since 2022, when Russia invaded Ukraine. The damaging effects of higher energy prices are steadily spreading deeper into economies.

Whatever the demand for oil might have been before the ill-thought-through assault on Iran,........

© Brisbane Times