The International Energy Agency said on Wednesday that member countries had unanimously agreed to release 400 million barrels of oil from their reserves in an effort to reduce rising prices due to the Iran war.
“The oil market challenges we are facing are unprecedented, so I am very pleased that IEA Member States have responded with urgent collective action of an unprecedented scale,” said IEA Executive Director Fatih Birol.
The agency did not set an exact timeline for when the release – the largest ever by IEA nations – would begin. “The IEA Secretariat will provide further details on how this joint action will be implemented in due course,” the statement said.
Following the IEA’s announcement, US crude oil traded at around 84 dollars per barrel, down several dollars before, which is a sign that the market does not expect the move to provide immediate relief or to quickly increase global supplies.
Since the start of the war with Iran, the Strait of Hormuz, along its southwest coast, has been closed to the movement of tanks amid threats from its forces. An estimated 20 million barrels of oil normally cross the strait every day, helping to meet the world’s daily demand for more than 100 million barrels of crude oil.
On Wednesday, the United Kingdom’s maritime trade monitoring agency reported at least three ships hit by projectiles in the region.
As a result, insurance companies, oil companies and commodity firms have withdrawn from operating in the area or from transiting the vital waterway. With so much oil and liquefied natural gas blocked from reaching the world market, energy prices have risen in the past two weeks.
Since the start of the war, US crude oil prices have risen more than 25%. Retail gas prices rose more than 50 cents to a national average of about $3.57 per gallon. Natural gas, jet fuel and international oil prices also jumped sharply.
The 32 member countries of the IEA include the United States, Britain, Japan, Germany, Canada, Australia, Italy and Mexico.
The IEA said that collectively, member countries hold an emergency stockpile of more than 1.2 billion barrels.
As of mid-February, Energy Department data shows that the US has a total of more than 415 million barrels of various types of crude oil sitting in the national strategic fuel storage. Other countries, in Europe and Japan, have millions more.
However, it will take time to build up the reserves before they reach the global market and ease the price of delivery.
Once a presidential order is issued to export oil from the national reservoir, the Energy Department typically doesn’t start delivering for about 13 days, “and more shipping time is needed before the volume reaches consumers,” JPMorgan Chase commodity analysts wrote in a note Tuesday.
In general, “policy measures can have a limited impact on oil prices unless it is confirmed that it passes through the Strait of Hormuz,” analysts said, given how much oil is blocked on the world market in the region.
Historically, they say, “emergency releases have increased by about 1.4 million barrels per day.” They added that it would help but “that speed will not adequately relieve the 16 million barrels per day and can only provide first aid.”
IEA countries have previously issued emergency cuts, notably an estimated 180 million barrels in 2022, after Russia invaded Ukraine.
