As Israel-Iran conflict escalates geopolitical risk scenarios, oil markets are facing new uncertainties. The global oil supply is set to far outpace demand growth in the coming years. Oil markets are undergoing structural changes as the key drivers of supply and demand growth over the past 15 years begin to fade, according to the latest edition of the medium-term outlook by the International Energy Agency (IEA).
The report Oil 2025, released on June 17, highlights several important trends that could considerably reshape global oil markets over the medium term.
In this context, global oil demand is forecast to increase by 2.5 million barrels per day (mb/d) between 2024 and 2030, reaching a plateau of around 105.5 mb/d by the end of the decade. India’s oil demand is set to rise sharply by 1 mb/d over the forecast period, more than any other country—in the wake of stellar GDP expansion, the IEA notes.
However, global annual demand growth slows from roughly 700 kb/d in 2025 and 2026 to a trickle in subsequent years, with a slight decline expected in 2030, based on current policy settings and market trends. This is attributed to sub-par economic growth, weighed down by global trade tensions and fiscal imbalances and the accelerating substitution away from oil in the transport and power generation sectors, the report states.
At the same time, global oil production capacity is projected to rise by over 5 mb/d to reach 114.7 mb/d by 2030. This increase, which significantly outpaces the projected 2.5 mb/d growth in global demand, will be led by Saudi Arabia and the United States.
While the overall picture for global oil demand is broadly unchanged from last year’s forecast, notable shifts are occurring among the world’s two largest consumers. China’s total oil consumption in 2030 is now expected to be only marginally higher than in 2024, compared with a previous forecast of around 1 mb/d growth.
In contrast, lower petrol prices and slowing momentum in electric vehicle (EV) adoption in the US, the world’s largest oil consumer, have led to a higher forecast for oil demand, up by 1.1 mb/d in 2030 compared with last year’s estimate. The OPEC+ alliance (comprising OPEC and 10 additional non-OPEC oil-producing nations) has also begun to unwind production cuts after nearly five years of restraint, reshuffling oil supply trajectories.
Iran’s oil supply has remained relatively robust despite tightening US sanctions and mounting tensions with Israel, making it the second-largest source of supply growth after the US for the second consecutive year. The country’s total oil production in 2024 reached its highest level since 2017, rising by 420 kb/d year-on-year to 4.7 mb/d. Crude exports averaged 1.6 mb/d, with nearly all of it landing in China, primarily for use in independent “teapot” refineries.
However, the report notes that US sanctions have become increasingly severe in recent months, targeting nearly all aspects of Iran’s oil supply chain. While exports have continued at 2024 levels, recent hesitancy from Chinese buyers led to a 30 per cent drop in Iranian crude imports in May compared with last year’s average. Ongoing negotiations with the US on the future of Iran’s nuclear programme cast a shadow of uncertainty on the path forward for sanctions, the report states.
Since petrochemicals are primarily produced from non-refined products such as natural gas liquids, these trends are set to increasingly affect the refining sector. The report forecasts that net refinery capacity will far exceed demand for refined products by 2030, which is likely to result in more capacity shutting down in the interim.
Amid global uncertainty and continued reliance on fossil fuels, developing and emerging economies are leading the transition away from them. The IEA report states that global biofuels production is expected to grow by 680 kb/d between 2024 and 2030, split evenly between ethanol and biodiesel. Brazil and India are expected to lead ethanol output growth, adding 140 kb/d and 100 kb/d respectively, and together accounting for 70 per cent of the total increase.