The International Energy Agency (IEA), a global energy watchdog whose members include several wealthy countries, announced the largest-ever release of government oil reserves, two weeks after the United States and Israel launched a war against Iran with the attack on Tehran.
In retaliation, the Iranian government launched attacks on U.S. military and energy facilities in Israel and the Gulf, blocking the Strait of Hormuz, a key artery in the global oil supply chain, and pushing oil prices above $100 per barrel.
“The war in the Middle East is causing the largest supply disruption in the history of the global oil market,” the IEA said in its monthly market report.
The IEA’s 32 member countries appeared hesitant earlier this week to tap into their strategic stockpiles, but ultimately announced they would release nearly 400 million barrels of emergency oil. This represents a third of the group’s total government reserves of 1.2 billion barrels.
IEA member countries have released oil from emergency stockpiles five times so far. During the 1990-1991 Gulf War. After Hurricane Katrina in 2005. During the 2011 Libyan civil war. and twice after Russia invaded Ukraine.
But will this latest release be enough to calm a turbulent market?
What did the IEA announce?
The energy watchdog has argued that the supply shock caused by Iran’s cargo ship attack and blockade of the Strait of Hormuz means energy markets are facing a deeper crisis than during the 1991 Gulf War or Russia’s 2022 invasion of Ukraine.
Before the U.S. and Israel attacked Tehran on February 28 and assassinated Iranian Supreme Leader Ayatollah Khamenei, Brent crude oil was trading at about $65 per barrel. Prices are now above $100, and Iranian leaders have warned countries that if attacks continue, they will not allow “a liter of oil” to pass through the Strait of Hormuz, and prices could rise to more than $200 a barrel.
Earlier this week, former IMF economist Olivier Blanchard was quoted in news outlet Business Insider as saying this could be possible if tankers carrying oil cannot be protected from Iranian attack. “I think it’s hard not to center around a scenario where oil prices remain at very high levels for an extended period of time, higher than the current price in the market,” Blanchard said Thursday.
The IEA announced plans to release 400 million barrels of oil, far exceeding the 182 million barrels of oil released by IEA member states in 2022 after Russia’s invasion of Ukraine.
“Energy security is the IEA’s founding mission, and I am pleased that IEA member states are demonstrating strong solidarity in taking decisive action together,” said Paris-based IEA Director General Fatih Birol.
Mr. Birol praised Member States’ decision to contribute to the release of strategic stocks. “This is a major measure aimed at mitigating the immediate impact of market turmoil,” Birol said. “But let me be clear: the most important thing to do to restore a steady flow of oil and gas is to reopen the Strait of Hormuz to traffic.”
About one-fifth of the world’s oil is transported through the Strait of Hormuz. This equates to an average of more than 20 million barrels per day. Also, the IEA’s coordinated releases typically occur over weeks or months, meaning only a portion of the planned 400 million barrels will be released in the short term.
The IEA has not yet given an exact schedule for the oil release.
Neil Quilliam, an associate fellow in the Middle East and North Africa program at Chatham House in London, said ultimately the IEA’s announcement “doesn’t change much” the ongoing crisis.
“It really depends on the pace of release. It’s not clear yet what the schedule will be,” Quilliam told Al Jazeera. According to some calculations, such a feeling of relief can disappear as early as three weeks.
“This is a one-shot solution. It’s a risky strategy,” he said. “So once that’s all said and done, there’s no real alternative.”
Oil prices soared again after new supreme leader Mojtaba Khamenei, the son of the slain Ayatollah, struck a more defiant tone in his first speech on Thursday.
What did the US announce?
The United States created its own Strategic Petroleum Reserve in 1975 after the Arab oil embargo exposed the weaknesses in Washington’s energy security.
It has the world’s largest reserves among countries that publicly report their reserves, with a maximum production capacity of approximately 720 million barrels.
Currently, Washington only has about 415 million barrels of crude oil, stocks depleted by Russia’s war with Ukraine, stored in underground salt caves along the Gulf Coast in Texas and Louisiana.
Currently, only China is estimated to have more stockpiles, but the amount China has is not made public.
The United States, currently the world’s largest oil producer and consumer, has confirmed the release of 172 million barrels of oil from the Strategic Petroleum Reserve as a contribution to a collaborative effort with the IEA.
US President Donald Trump told a local news channel on Thursday that the US government would use its boldest strategic reserves ever to stabilize prices in the energy sector, saying: “Then we will fill it.”
President Trump previously criticized former President Joe Biden’s administration for using reserves to lower gas prices.
Energy Secretary Chris Wright said releases would begin next week and delivery would take about 120 days. He added that the government will work to replace about 200 million barrels next year.
Will this solve the oil shortage quickly?
no.
“Oil molecules move fast, and so do markets. What matters is how fast the released volumes actually move,” Maxim Sonin, an energy executive who works with Stanford University’s Center for Future Fuels, told Al Jazeera.
“No release can fix the market unless the underlying issues are resolved,” he added.
Helima Croft, head of global commodity strategy at RBC Capital Markets, added: “Although the IEA has previously announced commitments from Japan, South Korea, France, Germany, the UK and the US and decided to release 400 million barrels from the group’s strategic oil reserves, the market impact of this move could prove to be limited.”
“Supply will be limited by the pace at which oil can be extracted from reserves.”
Trump and his officials have changed positions late in hostilities with Iran, often by the time the sun sets on other parts of the world. However, the US president insists the conflict is temporary and not another long-term war.
“But the fact that they are cooperating with the IEA and releasing 172 million barrels is important,” Quilliam told Al Jazeera. “What will happen once the deadline (of the end of the fighting and the number of days covered by strategic oil reserves) is exceeded?”
How fast can you release the oil?
Not really. On paper, the US claims it can release 4.4 million barrels per day. However, actual production volumes are much lower and can take weeks to reach delivery after drawdown is signed.
Energy Secretary Chris Wright said the U.S. would release the 172 million barrels it committed to over the next 120 days “to deliver on planned emissions.”
The U.S. Department of Energy said it will be ready to begin supplying oil to the market 13 days after it is released and sold. It could take even longer if crude needs to be shipped to Asia, where oil shortages are most acute in the aftermath of the Iran war. This means supplies may not reach Asian refiners until mid-May.
“Even with current emissions, the U.S. is still in good shape,” Stanford’s Sonin added. “Such large quantities will not reach the refinery in a day or two. It will be faster domestically, where pipeline connections are strong, and much slower if the barrels are transported.”
Regardless of the amount of oil released from reserves, “the government’s willingness to intervene is itself a strong positive signal to the market,” Sonin told Al Jazeera.
Is it the “right” type of oil?
Although the composition of the entire 400 million barrels being released into the market is unknown, we do know what kind of oil the United States has in its reserves.
Currently, the United States has reserves of 155 million barrels of sweet crude oil with low sulfur content and 261 million barrels of sour crude oil with high sulfur content.
Sweet crude oil is easier and cheaper to refine, while sour crude oil requires more complex refining and processing.
While U.S. refineries have invested billions of dollars to equip themselves to process sour crude, many oil-importing countries, such as India, where the energy crisis prompted governments to take emergency measures to stem hoarding, lack similar refining capacity, further complicating efforts to ease the crisis.
There are different types of oil.
Very heavy crude oil: Very dense and viscous crude oil, similar to bitumen, requiring complex and costly refining. Heavy crude oil: Rich, dense oil that produces less high-value fuel and requires more processing to refine. Intermediate crude oil: An intermediate density oil with relatively low refining costs and product yields between heavy and light crude oils. Light crude oil: Oil that is thinner, less dense, flows easily, and can be refined more easily to yield more valuable products such as gasoline (gasoline) or diesel.
Will 400,000 barrels of oil be enough in the long run?
Analysts have described the IEA’s release of oil reserves as a “band-aid measure.”
The IEA’s charter requires member countries, including G7 countries, to maintain emergency stockpiles of at least 90 days’ worth of imported oil.
Based on past precedent, the data firm estimates that IEA member countries could increase production by up to an additional 1.2 million barrels per day. However, this is only a fraction of the approximately 20 million barrels per day that transit the Strait of Hormuz. The release is therefore unlikely to have a significant impact on global shortages, analysts say.
What other steps has the United States taken to reduce the economic impact of the Iran war?
In addition to releasing oil from the U.S. Strategic Petroleum Reserve, the Trump administration has taken several additional steps to ease supply pressures and limit rising oil prices.
The U.S. Treasury Department has given countries a 30-day exemption from purchasing around 100 million barrels of sanctioned Russian crude oil already on board and at sea, in a bid to quickly add supply to global markets.
The administration is also considering a temporary exemption from the Jones Act, a U.S. maritime law that requires goods shipped between domestic ports to be carried on U.S.-built and U.S.-manned vessels, with the goal of easing domestic supply bottlenecks.
However, a White House spokesperson said this has not yet been finalized.
