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

In 2023, the International Energy Agency predicted that by 2028 the world’s oil companies would produce more oil than people wanted to buy. Prices responded to that and similar projections of slowing oil demand, dropping too low to attract investment for new wells and refineries.

No forecast anticipated that the Strait of Hormuz, the main route for Middle Eastern oil to reach global markets, would be almost completely blocked.

So in March 2026, when the strait closed in the wake of U.S. and Israeli attacks on Iran, there was little anyone could do to quickly restore the flow of oil and gas the world’s economy depends on. Some countries did have strategic reserves, but a massive coordinated release from those supplies didn’t make a difference for long – and those reserves may need to be replenished, paradoxically increasing demand for oil in the future.

Just before that conflict broke out, my fellow researcher, Hiroyasu Sakaguchi at the Institute of Energy Economics, Japan, and I wrote a report on oil and gas demand forecasts warning that even in the midst of oversupply, the global buffer for disruption is quite fragile. It was published by the Trilateral Energy Security Committee, which promotes energy-security cooperation between the U.S., Japan and South Korea.

As the fighting has continued, oil prices have climbed, causing fuel shortages and raising prices not only of gasoline and diesel, but fertilizer, food, consumer goods and just about everything else.

What an oil forecast is

The reasons today’s demand and supply are so mismatched took shape years earlier, in spreadsheets that most people don’t know about or ignore.

It can take about 20 years to go from exploring a new oil or gas field to shipping petroleum from it. When companies, banks and governments are deciding what projects to invest in, they look for indicators of how much oil and gas the world will want a decade or more from now.

Government research agencies, oil-producing countries and big oil and gas companies all produce long-range projections of demand and supply. These projections are really sets of “what-if” stories. Forecasters start with how much energy the world uses today, then make assumptions on topics such as how fast economies will grow, how quickly new technologies like electric cars will be adopted, and how policies like those on pollution and greenhouse gas emissions will change.

Each set of assumptions produces a different answer. When my colleagues and I compared major projections from 2025 for 2035, the highest projections expected 116.6 million barrels a day would be used; the lowest expected 89.4 million barrels a day. That’s an enormous difference of 27.2 million barrels a day just 10 years out, equal to about one-quarter of all the oil the world uses today.

Forecasts don’t always pan out

Oil forecasts a year or two out tend to be reasonably close to reality and each other, because most of the expected production is already in motion. But much like weather forecasts, the further into the future an oil market forecast looks, the more errors are possible, both with small errors in assumptions and big surprises nobody saw coming.

In the early 2000s, many experts worried the world was running out of oil that was cheap and easy to produce. Then, new drilling and hydraulic fracturing methods unlocked oil stored in layers of shale. From 2008 to 2025, U.S. production rose from 5 million barrels a day to 13.6 million.

In 2022, the International Energy Agency’s main scenario had world oil demand peaking in the mid-2030s. A year later, largely because sales of electric cars were increasing so quickly, the agency moved that peak to before 2030.

Then in 2025, the IEA revived a scenario it had shelved – one counting only policies already in force – in which oil demand keeps rising until at least 2050. That move was a response to pressure from the U.S. government and others asserting that all the IEA published forecasts did not account for rising demand from artificial intelligence data centers and anticipated accelerating adoption of green technology.

Assumptions rest on hard-to-predict human behavior and frequently don’t work out. The popularity of electric vehicles provides a good example. In Norway, about 9 in 10 new cars sold in 2024 were fully electric. Yet fuel use on the roads fell only about 10%, because Norwegian buses and trucks still mostly burn diesel. In China, more than half of new cars sold in 2024 were electric, but the country still uses more gasoline than it did before 2020.

In the United States, sales of fully electric vehicles appear to have peaked, at least temporarily, following the expiration of a federal tax credit in 2025. The share of registered electric vehicles, including hybrid, plug-in and fully electric, remains in the single digits. Interest, though, has climbed with pump prices: A majority of U.S. drivers now say high gas prices have made them more open to an electric car, even as the cost of buying one keeps sales down.

Preparing for the wrong problem

Forecasts matter because money follows them. If demand is expected to rise, companies drill new wells, expand refineries, build tankers and construct pipelines. If demand is expected to fall, they hold back, so they don’t end up with more oil than anyone will buy at a profitable price.

For much of the past decade, the most influential forecasts pointed toward slowing demand. Banks grew wary of funding oil and gas projects, especially considering growing commitments to expand the use of renewable energy sources and reduce emissions to tackle climate change. Banks have become more willing to support petroleum projects, but funding is just the first step in the multiyear process of bringing more oil to market.

In addition, oil and gas fields produce less as they age. About 90% of recent spending on production went to making up for those declines, not to adding new supply beyond current production levels. The result was a system built to let supply slide gently down, not to quickly ramp up.

Understandably, no forecast predicted a war, and with so little supply to spare, big disruptions translated into big price jumps.

Why lowering prices takes years

Investments do not provide fast relief. When oil prices crashed in 2014, companies nearly stopped approving new liquefied natural gas plants to chill natural gas into liquid for shipping.

Demand kept growing anyway, especially in China, and in 2019 new investment for liquefaction capacity surged – a record year, with about US$65 billion of investment commitments for new projects.

But expansion projects take years to build, so the ones skipped in the lean years simply were not there in the early 2020s. When Russia cut gas to Europe in 2022, there was no slack in the system, and prices hit record highs.

The same delay between investment and production applies now. Money committed in 2026 won’t produce much oil and gas until the 2030s. And investors face a fresh round of guesses about how quickly renewable energy use could grow – especially as oil prices stay high. They also have to guess when the conflict might end, and when wells, refineries and shipping locations will be repaired and able to resume shipping oil out of the Persian Gulf region.

For people filling their gas tanks and paying their heating bills, these forecasting uncertainties mean prices are likely to stay high and volatile for some time, even when the fighting stops. The energy the world has today was shaped by guesses made years ago – and the energy it will have years from now depends on the guesses being made today.

John Patrick Schoeneman Jr. receives funding from the Trilateral Energy Security Committee, which focuses on policy collaboration between Japan, the U.S., and South Korea to enhance energy security. This work is supported by the Hamm Institute for American Energy, whose stated mission is energy security for the United States and its allies and whose funding is connected to the U.S. oil and gas industry. As a researcher, John is asked to attend events and review reports they publish, but not for pro-oil and gas policy advocacy. John holds no financial stake in any oil, gas, or energy company discussed.