Oil and gas industry expected surplus – but war brought shortage instead

In 2023, the International Energy Agency (IEA), a global energy research organization, predicted that by 2028 the world’s oil companies would produce more oil than people wanted to buy. This forecast led to lower oil prices, which were too low to attract investment for new oil wells and refineries. The IEA based its predictions on factors like slowing economic growth, increasing adoption of electric cars, and policies aimed at reducing pollution. However, these projections did not account for major geopolitical disruptions. For example, the IEA expected oil demand to peak in the mid-2030s, but by 2023, it revised this estimate to before 2030 due to the rapid rise of electric vehicles. Despite these adjustments, the forecasts remained uncertain because they relied on assumptions about human behavior, technology adoption, and government policies that are difficult to predict accurately.

In March 2026, the Strait of Hormuz, a critical shipping route in the Middle East that carries about one-third of the world’s oil supply, was almost completely blocked following military actions by the U.S. and Israel targeting Iran. This closure disrupted the global flow of oil and gas, which the world economy heavily depends on. Countries with strategic oil reserves attempted to release massive amounts of oil to stabilize prices and supply, but these efforts provided only temporary relief. For instance, over 400 million barrels of oil were added to the market through strategic reserves, but this was not enough to meet demand in the long term. The closure also forced countries like Iraq to transport oil overland to Syrian ports for shipping, a costly and inefficient alternative. The conflict highlighted the fragility of global oil supply buffers, even during periods of oversupply.

The disruption in oil supply caused by the Strait of Hormuz closure led to a sharp increase in oil prices. This affected not only gasoline and diesel prices but also the cost of essential goods such as fertilizer, food, and consumer products. For example, diesel prices, which are critical for transportation and agriculture, reached record highs. The rising fuel costs also impacted industries reliant on oil, including plastics and chemicals. The conflict’s economic ripple effects demonstrated how interconnected oil prices are with everyday life. The price hikes were not temporary; they persisted as the conflict continued, leaving consumers and businesses facing higher costs for an extended period.

Creating accurate oil forecasts is complex because it involves predicting human behavior, technological advancements, and government policies decades into the future. Forecasts are essentially what-if scenarios that start with current energy use and make assumptions about future economic growth, technology adoption, and policy changes. For instance, in 2025, major forecasts for 2035 oil demand ranged from 89.4 million barrels per day to 116.6 million barrels per day—a difference of 27.2 million barrels, equivalent to about one-quarter of today’s global oil use. These variations highlight the uncertainty in forecasting, as small changes in assumptions can lead to vastly different outcomes. Historical examples, such as the unexpected boom in U.S. shale oil production in the 2000s, show how forecasts can be upended by unforeseen technological or geopolitical developments.

Oil and gas projects require significant time and investment to develop. It can take up to 20 years from exploring a new oil field to producing and shipping oil from it. This long timeline means that investment decisions made today will not impact supply until the 2030s or later. For example, when oil prices crashed in 2014, companies reduced investments in new liquefied natural gas plants. By 2019, demand had grown, particularly in China, but the lack of prior investment meant there was no spare capacity to meet the increased need. Similarly, today’s underinvestment in oil and gas production—due to forecasts of declining demand—means the global system is ill-prepared to quickly ramp up supply in response to disruptions. About 90% of recent spending on oil production has gone toward maintaining existing fields rather than expanding supply.

The transition to renewable energy sources adds another layer of uncertainty to oil forecasts. While the adoption of electric vehicles (EVs) has grown rapidly in some countries, such as Norway, where 90% of new cars sold in 2024 were fully electric, the impact on overall fuel demand has been limited. For instance, fuel use in Norway fell only about 10% because diesel-powered buses and trucks still dominate transportation. In China, despite over half of new car sales being electric in 2024, gasoline demand remains higher than before 2020. In the U.S., EV sales peaked temporarily in 2025 after federal tax credits expired, and the share of electric vehicles remains in the single digits. High gasoline prices have increased interest in EVs, but affordability continues to limit widespread adoption. These mixed signals make it difficult to predict how quickly renewable energy will replace fossil fuels.