In its monthly report, the Paris-based IEA cut its forecast for global demand growth to 1.4 MMBPD for 2018, from a previous estimate of 1.5 MMBPD.
Asia's demand is at record highs and with rising prices its crude could cost $1-trillion this year, about twice what it paid during the market lull of 2015-16.
Crude oil continues to remain glued to three-year highs and WTI crude prices testing the 72.00/barrel price level as Middle East tensions continue to bolster oil prices.
"There will be the obligation to reduce imports of Iranian crude oil and, in more general terms, sanctions on any commercial operations and transactions of the (energy) sector with Iran", the source said.
Concerns over the impact of U.S. re-sanctioning on Iran apart from other factors like economic crisis in Venezuela are keeping the oil prices high. At what point does the price of oil cut demand.?
"The fact is that crude oil prices have risen by almost 75 percent since June 2017", the IEA's report added. Since the European Union is unlikely to follow the U.S.in re-imposing sanctions on Iran, the overall impact on the Persian Gulf state's exports will be "far more muted" than in the past, tanker tracker Petro-Logistics said in a note.
Physical crude markets are sagging under the weight of unsold barrels of oil, while the 50-percent rise in the oil price in the a year ago is encouraging major companies such as ExxonMobil, Royal Dutch Shell, Chevron, BP and Total to increase output.
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The recent decision by US President Donald Trump to withdraw from the Iran nuclear agreement has raised fears that renewed sanctions by Washington could severely hit production from the Middle East state, which now produces 3.8 million bpd and exported 2.6 million bpd last month - making it Opec's third-largest supplier. This compares with 340 million barrels when OPEC, Russia, and several other producers agreed to cut production to stimulate prices.
This was the case with Drill, Baby, Drill the slogan, which proved to be popular and gained further prominence after it was used by Republican Vice Presidential nominee Sarah Palin in her debate with Joe Biden in the 2008 US Presidential elections.
On the other hand, USA production is growing at a pace that made traders hesitate last week after Baker Hughes reported yet another increase in drilling rigs. West Texas Intermediate, the USA benchmark, was down 0.67 percent to $70.83 per barrel.
The International Energy Agency might see its "demand destruction", but only if it is caused by a geopolitical or weather premium spike. Oil stocks were expected to drop further as peak summer driving season nears, offsetting increases in U.S. shale output, said analysts at Bernstein.
Going forward, however, Iran's oil exports are expected to fall.
But an agreement between oil-producing countries to restrict supplies has helped push the price back up.
From 1999-2007 we saw oil prices rise driven by global demand growth in China and rising prices on average did not slow demand.