The International Energy Agency (IEA) and its member nations have agreed to release a record 400 million barrels of oil from strategic reserves in an attempt to stabilize global energy markets as the war involving Iran continues to disrupt crude flows through the Strait of Hormuz.
The coordinated action, announced Wednesday by the IEA, represents the largest emergency oil release ever organized by the group and only the sixth such intervention since the IEA was created following the 1970s oil shocks. The move comes as tanker traffic through the Strait of Hormuz, which serves as the critical chokepoint for roughly 20% of global oil and LNG trade, has slowed sharply amid escalating military activity in the Gulf.
IEA Executive Director Fatih Birol described the decision as a “major action” aimed at easing the supply shock now hitting global energy markets, according to reporting by NPR. Member countries collectively control roughly 1.8 billion barrels of emergency stockpiled crude and refined fuels that can be deployed during severe disruptions to global supply.
Precise allocations from each country have not yet been announced, though the release will draw from reserves held by the IEA’s 32 member states including the United States, Japan, South Korea, Canada and most European economies. Association partners such as China and India are expected to monitor the situation closely as markets attempt to stabilize.
Oil prices have swung wildly since the conflict escalated, climbing from roughly $70 per barrel before the war to nearly $120 during the height of supply fears before retreating toward the $90 range on Wednesday, as Washington attempted to quell fears of a protracted war.
The intervention follows days of uncertainty over whether major consuming nations would tap emergency reserves. Earlier this week, G7 finance ministers had delayed a decision on releasing strategic oil stocks while assessing the severity of the supply disruption.
The United States holds the world’s largest government-controlled crude stockpile in its Strategic Petroleum Reserve, which currently contains about 415 million barrels out of a maximum capacity of 715 million. According to the latest industry estimates, U.S. commercial crude inventories fell by 1.7 million barrels in the week ending March 6 while SPR volumes remained unchanged.
The emergency action is designed to offset the sudden loss of millions of barrels per day of crude shipments normally transiting the Strait of Hormuz as the conflict continues to destabilize energy trade routes across the Gulf.
By Charles Kennedy for Oilprice.com
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