IEA warns of tariff-induced oil demand slump in 2025

The International Energy Agency sees new US tariffs dragging on global oil demand in 2025, it said March 13, warning that macroeconomic pressure could outweigh the stimulus effects of softer oil prices.

In its latest monthly oil market report, the global energy watchdog projected world oil supply to outstrip demand by 600,000 b/d in 2025, up 100,000 b/d from its previous forecast, without accounting for OPEC+ fully rolling back its voluntary production cuts beyond April this year.

New IEA figures forecast world oil demand to total 103.91 million b/d in 2025, downgrading last month's estimate by 90,000 b/d. The downgrade was triggered by "underwhelming" consumption data and souring macro sentiment, the IEA said, ending a three-month streak of improving consumption forecasts for the year.

The report singled out new tariffs imposed by the US as a particular risk for global oil demand. High-profile tariffs on Canada and Mexico are set to take effect April 1, while Chinese goods were made subject to new 20% tariffs in March, though uncertainty prevails over the longevity of "on-again off-again" measures, the report said.

"Macro risks are tilted to the downside, with a tariff-induced stagflationary scenario set to weigh on overall oil demand growth," the report said, highlighting high risks for export-dependent emerging markets and China.

Already, the agency has observed nascent signs of deteriorating economic sentiment slowing oil demand in countries including Brazil, India and Singapore, it said, and warned that faster economic slowdowns in key emerging economies could flip its growth forecasts for major fuels into contraction.

Nevertheless, the IEA said that lower oil prices "are acting as a lifeline" for emerging markets, and linked falling costs to stronger year-on-year growth expectations for 2025.

Supply factors

The IEA left its global supply outlook for 2025 unchanged at 104.5 million b/d, maintaining a conservative estimate for OPEC+ supply injections.

On March. 3, the producers alliance announced plans to unwind 2.2 million b/d of voluntary production cuts from April 2025, promising to phase supplies back into the market until September 2026.

However, the IEA continued to base its supply model on the assumption that voluntary cuts are kept in place after April.

"Any further increases tentatively scheduled to go through the end of September 2026 are unclear and still need to be confirmed. Furthermore, compliance with the existing plan remains elusive, and adherence to compensation plans by those overproducing has so far been weak," the report said.

If extra voluntary cuts are fully unwound according to the latest schedule, OPEC+ could add 400,000 b/d to the IEA's 2025 supply forecast, it said.

The agency reported that OPEC+ led a 240,000 b/d jump in world oil supply in February, thanks to record output from Kazakhstan with the ramp-up of its Tengiz field and a 130,000 b/d jump in output from Iran and Venezuela ahead of sanctions clampdowns.

It continues to see non-OPEC+ production driving the bulk of supply growth in 2025, forecasting a 1.5 million b/d increase driven mostly by the Americas.

The IEA downgraded its Venezuelan supply forecasts for 2025 by 190,000 b/d on the news that Chevron will lose its license to operate in the OPEC country in April, contributing to a 110,000 b/d downward adjustment to the overall OPEC+ production forecast.