G7 Supports Coordinated Oil Reserve Release to Address Price Surge
The G7 nations have expressed their support for a collective release of oil from their strategic reserves to address the sharp rise in oil prices triggered by the ongoing US-Israel conflict involving Iran.
The group has been in discussions with the International Energy Agency (IEA), which is reportedly preparing its largest intervention in the oil market to date, scheduled for Wednesday afternoon.
Impact of Conflict on Oil Supply
The conflict has severely disrupted oil exports through the critical Strait of Hormuz, a key maritime route that handles approximately 20% of global oil shipments. This disruption has led to a significant decline in regional oil production.
Since the onset of the conflict, oil prices have surged but showed signs of stabilization following indications that countries might release oil from their reserves. However, some experts caution that this measure may only provide a temporary reprieve.
Scale of Potential Oil Release
Reports suggest the IEA could release between 300 and 400 million barrels of oil, which would be more than twice the volume released after Russia's full-scale invasion of Ukraine in early 2022.
Despite the large volume, this quantity would cover only about three to four days of global oil consumption or roughly two weeks' worth of typical shipments through the Strait of Hormuz.
G7 Energy Ministers' Statement
Following a meeting with the IEA on Wednesday, G7 energy ministers stated:
"In principle, we support the implementation of proactive measures to address the situation, including the use of strategic reserves."
Strategic Oil Reserves and Their Management
All IEA member countries are mandated to maintain reserves equivalent to 90 days of their national oil consumption to safeguard against global supply disruptions.
These reserves are not stored in a single location. For instance, oil producers such as Shell and BP maintain stocks at various terminals and refineries across the UK and may designate stocks held elsewhere as part of their reserves.
Releasing oil reserves does not equate to an immediate surge of new oil entering the market. Instead, producers increase the availability of oil for refineries to order. However, energy analysts have noted a shortage of refining capacity, which could limit the impact of increased supply.
Limitations of Reserve Releases
A significant consideration is that releasing reserves is a one-time action. Once the reserves are depleted, they cannot be replenished quickly.
"Once you release them, they don't exist," said Nick Butler, former head of strategy at BP, in an interview with the BBC.
