Global fossil fuel emissions are on track to fall roughly 0.5% in 2026, the first annual drop since 2020, as the Hormuz shipping crisis chokes oil and gas demand. A parallel jump in coal use is not enough to offset the decline, even as energy stocks keep pricing the supply shock rather than the collapse in fuel use.
Brent crude settled at $104.82 a barrel on Sept. 17, seven months into a shock that began when strikes on Iran shut down tanker traffic through the Strait of Hormuz. That same day, the U.S. average for a gallon of regular reached $4.4386, with California diesel averaging $8.3496. Against that backdrop, global fossil fuel emissions are now set to fall by roughly 0.5% this year, which would mark the first annual decline since the pandemic year of 2020.
Hormuz shutdown cuts oil demand forecasts
About a fifth of the world's oil trade, plus a similar share of seaborne liquefied natural gas, moves through the 21-mile-wide strait between Iran and Oman. Closing it repriced fuel worldwide within weeks.
In January, the International Energy Agency expected global oil demand to grow by 930,000 barrels per day in 2026. By September, it was forecasting a 2.5 million barrel per day contraction instead, a swing of roughly 3.4 million barrels a day in nine months. The agency has called the loss of Gulf barrels the largest supply disruption in the history of the global oil market.
Coal use rises but does not offset the drop
Not every fuel is losing ground, however. Expensive gas pushed power systems in Europe, Japan, Korea and China back toward coal, and global coal demand is now set to rise 1.2% this year to a record 8.94 billion tonnes, reversing an earlier forecast for a slight decline. Yet the jump in coal emissions is more than offset by declines in oil and gas, according to Carbon Brief.
Gas demand has swung from a forecast 2% increase in January to a 0.6% drop. For context, fossil CO2 emissions hit a record 38.1 billion tonnes in 2025, and they have fallen clearly only twice in two decades, in 2009 and 2020, according to the Global Carbon Project.
Energy stocks still price the supply shock
Energy equities have spent 2026 pricing the supply disruption rather than the demand break. The Energy Select Sector SPDR Fund traded near $65.83 on Sept. 14, against a 52-week range of $42.35 to $66.17, after a total return of about 53% over the past year.
Meanwhile, diesel crossed $6 a gallon nationally for the first time on Sept. 11, up from about $3.70 a year earlier, and electric vehicles took record shares of car markets from Australia and China to Indonesia and Thailand this year. Every month the conflict runs raises the odds of lasting demand loss, according to consultancy DNV: "the probability of permanent demand destruction".
Whether that demand stays destroyed once tankers move freely again will decide if 2026's emissions dip becomes a turning point or a one-year blip.
Source: TheStreet
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