The International Energy Agency (IEA), a global energy watchdog, with several of the wealthiest countries as member nations, has announced the largest release of government oil reserves in its history, two weeks after the United States and Israel started their war on Iran with strikes on Tehran.
In retaliatory attacks, Tehran has launched strikes on Israel as well as US military assets and energy facilities in Gulf countries, and has closed the Strait of Hormuz, a vital artery in the global oil supply chain, driving up crude prices to more than $100 per barrel.
“The war in the Middle East is creating the largest supply disruption in the history of the global oil market,” the IEA said in its monthly market report.
While the IEA’s 32 member nations appeared hesitant earlier in the week to tap into the strategic reserves, they ultimately announced they would release nearly 400 million barrels of emergency crude. That’s one-third of the grouping’s total holding of 1.2 billion barrels of government reserves
Previously, IEA member nations have released oil from emergency reserves five times: During the 1990-1991 Gulf War; after Hurricane Katrina in 2005; during the Libyan civil war in 2011; and twice after the Russian invasion of Ukraine.
But is this latest release sufficient to calm down the disrupted market?
The energy watchdog argued that the supply shock triggered by Iran’s strikes on cargo vessels and its blockade of the Strait of Hormuz meant energy markets are facing a worse crisis than during the Gulf War of 1991 and Russia’s 2022 invasion of Ukraine
Before the US and Israel attacked Tehran – and assassinated Iran’s Supreme Leader Ayatollah Ali Khamenei – on February 28, Brent crude was trading at about $65 per barrel. Now, it is above $100, and Iranian leaders have warned countries that it will not allow “one litre of oil” to pass the Hormuz Strait if attacks continue, and that the price could go above $200 per barrel
Earlier this week, former IMF economist Olivier Blanchard was quoted by news outlet Business Insider that this could be possible if tankers carrying oil cannot be protected from Iranian attacks. “I find it hard not to have as a central scenario where oil prices will remain very high for a long time, higher than the market current prices,” Blanchard said on Thursday.
The IEA’s announcement of a plan to release 400 million barrels of oil is much higher than the 2022 release of 182 million barrels of oil by the group’s members after Russia invaded Ukraine
“Energy security is the founding mandate of the IEA, and I am pleased that IEA members are showing strong solidarity in taking decisive action together,” said Fatih Birol, executive director of the Paris-based IEA
Birol applauded the member nations’ decision to contribute to the release from their strategic reserves. “This is a major action aiming to alleviate the immediate impacts of the disruption in markets,” Birol said. “But, to be clear, the most important thing for a return to stable flows of oil and gas is the resumption of transit through the Strait of Hormuz
About one-fifth of the world’s oil is transported through the Strait of Hormuz. That’s more than 20 million barrels daily on average. And coordinated IEA releases are usually spread over weeks or months, meaning only a portion of the 400 million planned barrels will be released in the short term
The US Treasury issued a 30-day waiver allowing countries to purchase sanctioned Russian oil that was already loaded and at sea, amounting to roughly 100 million barrels, in an effort to quickly add supply to global markets.
The administration is also considering temporarily waiving the Jones Act, a US maritime law requiring goods shipped between domestic ports to be carried on US-built and US-crewed vessels, aiming to ease domestic supply bottlenecks
However, a White House spokesperson said this has not been finalised yet.