IEA Slashes 2025 Global Oil Demand Forecast Amid Escalating U.S.-China Trade Tensions

The International Energy Agency (IEA) has downgraded its global oil demand growth forecast for 2025, citing intensifying geopolitical and trade tensions—most notably between the United States and China—as key drivers behind the expected slowdown. The revised projection, released in the IEA’s April Oil Market Report, anticipates a growth of just 1.1 million barrels per day (bpd), down from the previous estimate of 1.6 million bpd, signaling a sharper-than-expected deceleration in consumption growth.

The IEA attributes the downgrade to a confluence of factors: disrupted trade flows, weakening industrial activity in key markets, and a retrenchment of energy-intensive sectors as tariffs and retaliatory measures continue to ripple through the global economy.

At the heart of the forecast revision lies the deepening trade conflict between the world’s two largest economies. In the past two weeks, the Biden-era Section 301 tariffs—already reimposed by President Trump—have been aggressively expanded, raising duties on Chinese electronics, rare earth elements, semiconductors, and industrial machinery. In response, China has tightened its export controls on strategic metals and halted several long-term U.S. energy import contracts.

This retaliatory tit-for-tat has had immediate consequences. China, the world’s second-largest oil consumer, is reportedly scaling back crude imports amid declining export orders, growing domestic inventories, and broader uncertainty over U.S.-linked energy flows. The IEA warns that should tensions persist into the second half of the year, the global oil market could face a prolonged period of volatility, with demand growth stalling in both OECD and non-OECD economies.

The IEA report highlights that the transportation sector—long a pillar of oil demand growth—has shown signs of stagnation, particularly in Asia. Reduced export-driven logistics activity, combined with increased fuel efficiency and a faster-than-expected adoption of electric vehicles (EVs), has diminished gasoline and diesel demand in key corridors such as Southeast Asia and the Chinese eastern seaboard.

In the petrochemical sector, demand has softened in tandem with weakened global manufacturing indicators. Major ethylene and propylene producers in China and South Korea are operating at lower utilization rates, largely due to slower plastics and synthetic rubber exports, which are directly tied to Western consumer markets.

The aviation sector remains a partial bright spot, with international air travel nearing pre-pandemic levels. However, jet fuel consumption is not enough to offset the broader drag caused by sluggish industrial momentum.

Oil producers are now grappling with a rapidly shifting demand landscape. OPEC+ is expected to revisit its production strategy at its June summit, with Gulf members increasingly inclined to extend voluntary output cuts beyond Q3 2025. Meanwhile, U.S. shale producers are scaling back drilling activity as forward prices fall and capital expenditure budgets tighten.

“The downward revision underscores how fragile the current recovery is,” said Fatih Birol, Executive Director of the IEA. “Trade uncertainty acts like a brake on investment, manufacturing, and ultimately, energy consumption. Stability in trade policy is no longer a macroeconomic luxury—it’s a foundational component of energy security.”

This revision may also dampen near-term investor confidence in the oil and gas sector, with equity analysts already signaling downward adjustments to earnings forecasts for integrated oil majors and service companies. Benchmark crude prices, including Brent and WTI, dipped modestly following the release of the report but remain rangebound amid OPEC+ restraint and geopolitical risk premiums.

The IEA’s report comes at a crucial juncture as governments and industry stakeholders debate the pace and direction of the energy transition. While lower demand growth may temporarily alleviate pressure on supply chains and inflation, it raises fundamental questions about long-term oil project viability, especially in emerging markets with capital-intensive upstream developments.

The IEA’s downward revision reflects a volatile new normal for global energy markets, where geopolitical decisions increasingly dictate economic outcomes. As the world navigates a contested trade environment, energy policymakers and industry leaders alike must recalibrate their strategies—not only for demand scenarios, but for the very architecture of global energy flows.