Fossil Fuel Emissions Poised to Fall as Oil Shock Crushes Demand

Every prolonged energy shock delivers the same harsh lesson.

When fuel remains expensive long enough, consumers and businesses buy less, not because regulations force them to, but because the economics of flying, manufacturing and driving no longer work.

That calculation broke in late February, when strikes on Iran began and tanker traffic through the Strait of Hormuz seized up.

Brent crude settled at $104.82 a barrel on Sept. 17, according to CNBC.

The national average for regular gasoline reached $4.4386 a gallon that day, while diesel in California averaged $8.3496, according to AAA.

After seven months of punishing prices, airlines reduced schedules, Asian petrochemical plants idled and car buyers from Jakarta to Berlin searched for vehicles with plugs.

The International Energy Agency now expects global oil consumption to contract by 2.5 million barrels per day in 2026, down 2.4% from 2025.

Meanwhile, global fossil fuel emissions are expected to fall by roughly 0.5% this year, according to a Carbon Brief figure published Sept. 16.

That would mark the first annual decline since the pandemic year of 2020.

The change did not emerge from a treaty, but from an extraordinary disruption in a channel between Iran and Oman that carries about one fifth of global oil trade and a similar share of seaborne LNG.

The shift in the IEA outlook captures the scale of the rupture.

In January, the agency expected global oil demand to increase by 930,000 barrels per day in 2026, but by September it was modeling a contraction of 2.5 million barrels per day.

The difference between those projections is roughly 3.4 million barrels per day in nine months.

Demand destruction followed as jet fuel became too costly for certain airline routes, naphtha became too expensive to crack and gasoline made commuting five days a week increasingly unaffordable.

The IEA has described the loss of Gulf barrels as the largest supply disruption in the history of the global oil market.

Yet the emissions arithmetic is complicated because the same shock that crushed oil and gas consumption also drove power systems in Europe, Japan, Korea and China back toward coal.

Carbon Brief said the increase in coal emissions was “more than offset by declines for oil and gas.”

Global coal demand is now projected to climb 1.2% this year to “a record 8.94 billion tonnes,” according to the IEA, reversing an earlier expectation for a slight decline.

Gas demand has undergone its own reversal, moving from a projected 2.0% increase in January to a 0.6% decline in the IEA’s third quarter gas report. Missing LNG cargoes helped push utilities toward coal, very little of which moves through Hormuz.

Fossil carbon dioxide emissions reached a record 38.1 billion tonnes in 2025, according to the Global Carbon Project.

Its record shows only two clear declines in fossil CO2 emissions over two decades, during the banking collapse in 2009 and the pandemic in 2020.

Energy equities have spent 2026 reflecting the supply shock while giving less attention to the demand break.

The Energy Select Sector SPDR Fund traded near $65.83 on Sept. 14, close to the top of its 52 week range of $42.35 to $66.17, after returning about 53% over the preceding year.

The IEA now expects oil use to remain close to flat for two years, creating uncertainty around its own projection that demand would not peak until 2030. Consultancy DNV said every additional month of conflict raises “the probability of permanent demand destruction.”

Electric vehicles captured record shares of car markets from Australia and China to Indonesia and Thailand this year. Households and fleets that bought electric vehicles, or simply began driving less after national diesel prices crossed $6 a gallon on Sept. 11, will not automatically reverse those decisions if crude prices decline.

The outlook now rests heavily on shipping lanes. If LNG movements through Hormuz recover and gas prices retreat, the IEA expects global coal demand to decline 0.4% to 8.91 billion tonnes in 2027, while a continued closure would send coal demand higher again.

The Global Carbon Project will publish its next full budget at the end of the year, showing whether the 0.5% emissions decline was temporary or marked a turn.

For investors, the critical question is how many drivers, airlines and utilities that switched during the shock will stay switched after tankers return.