Oil prices fell on Tuesday, as the International Energy Agency forecast that “demand destruction will spread” amid growing supply scarcity and higher average prices because of the conflict in the Middle East.

U.S. crude oil futures for May delivery were down 2.74% to $96.37 per barrel as of 3:55 a.m. ET. International benchmark Brent for June delivery was down 1.03% at $98.34 per barrel.

The conflict has already led to the greatest disruption to oil supply in history, according to the IEA, and the largest ever monthly spike in prices during March.

Oil prices also moved on reports on Tuesday that suggested peace talks between Washington and Tehran could resume as soon as this week after negotiations failed at the weekend.

The IEA’s latest forecasts indicate global oil demand could contract by the greatest degree since the Covid-19 pandemic.

The agency wrote: “Oil demand is expected to contract by 80 kb/d this year, as the Iran war upends our global outlook.

“This is 730 kb/d less than in last month’s Report and a forecast 1.5 mb/d 2Q26 decline would be the sharpest since Covid-19 slashed fuel consumption.

“Initially, the deepest cuts in oil use have come in the Middle East and Asia Pacific, mainly for naphtha, LPG and jet fuel. However, demand destruction will spread as scarcity and higher prices persist.”

U.S. Vice President JD Vance said Monday that the next steps in U.S.-Iran peace efforts now depend on Tehran, after returning from weekend talks that failed to produce a breakthrough.

“Whether we have further conversations, whether we ultimately get to a deal, I really think the ball is in the Iranian court, because we put a lot on the table,” Vance said in a Fox News interview.

He also noted that an agreement could benefit both sides if U.S. conditions, particularly on Iran’s nuclear program, were met.

This comes as the U.S. commenced a “blockade” of Iranian ports in the Persian Gulf on Monday. President Donald Trump had said Sunday that the U.S. would blockade the strait, marking a sharp escalation following a two-week ceasefire.

United States Central Command later said the measures would apply only to ships entering or leaving Iranian ports and coastal zones.

The blockade “directly endangers” Iran’s oil exports through the Strait of Hormuz, which tracked at around 1.7 million barrels per day last month, according to Commonwealth Bank of Australia’s Vivek Dhar. 

“Therefore, the blockade tightens physical oil and refined product markets even further,” he said.