Global investments in oil projects are due to fall for the third year in a row, as the supply shock from the Middle East conflict shifts priorities to new trade routes and other energy sources.

Despite higher oil prices, spending on oil projects is set to drop below $500 billion in 2026, according to the International Energy Agency’s annual World Energy Investment report published Thursday.

Oil markets have been in turmoil since the US-Israeli war on Iran effectively closed the Strait of Hormuz, through which a fifth of the world’s seaborne crude was shipped. The disruption has caused price spikes and supply shortages in several parts of the world, forcing companies and countries to rethink their energy investment strategies.

"We are in the midst of the largest energy security crisis the world has ever faced – and I believe this will reshape investment strategies globally," IEA Executive Director Fatih Birol said in the statement. "We are already seeing intensified efforts by both producer and consumer countries to diversify trade routes and energy sources."

Overall energy investments are expected to rise slightly to $3.4 trillion in 2026, and are mostly going to power grids, storage, low-emissions fuels, nuclear, renewables and electrification. Key fuel importers are now looking for energy resources at home, mainly renewables, nuclear and coal.

Gas spending is projected to rise to $330 billion, the highest level in a decade, supported by a wave of new liquefied natural gas export projects, mainly in the US and Qatar, the Paris-based agency said, in its first full-year estimates for 2026.

In the Middle East, the war has cut export income and sparked a search for new export routes as confidence in the reliability of the Strait of Hormuz has been "profoundly shaken." Also, the tens of billions of dollars required to repair facilities "could reduce outward capital flows, which have been a growing source of financing for infrastructure and energy projects in other regions."

Birol has previously warned that the world is losing 14 million barrels a day of oil because of the war. Earlier this month, he said the IEA was ready to take further action after members agreed in March to release 400 million barrels from emergency reserves to the market in the biggest-ever discharge.