Amid soaring crude oil prices worldwide due to the ongoing US-Israel war with Iran, the International Energy Agency (IEA) has proposed the largest disbursement of oil reserves to help bring down prices.
The release could exceed the 182 million barrels of oil that IEA member countries put on the market in two separate releases in 2022, when Russia launched its full-scale invasion of Ukraine.
According to a report by the Wall Street Journal, the proposal was circulated at an emergency meeting of energy officials from the organisation’s 32 member countries on Tuesday.
Officials familiar with the matter said that the countries are expected to decide on the proposal on Wednesday.
The plan will be adopted if no member objects; however, even if a single country objects, then the plan could be delayed.
Why it matters?
The IEA’s proposal aims to counter disruptions caused by the near-total closure of the Strait of Hormuz. The narrow waterway lies between the Persian Gulf and the Gulf of Oman and connects the region’s oil exports to global markets. According to the Wall Street Journal, around one-fifth of the world’s oil supply passes through the strait every day and the threat of tanker attacks by Tehran has halted ship traffic.
Since February 28, when the United States and Israel began strikes on Iran, crude oil prices have surged by nearly 40%, briefly crossing the $100-per-barrel mark. However, prices fell this week as traders closely tracked statements by President Donald Trump about how long the conflict might last. On Tuesday, crude oil prices dropped to below $84 per barrel, although diesel prices have continued to rise.
IEA Executive Director Fatih Birol said on Monday that member countries hold about 1.2 billion barrels in public oil stocks, along with another 600 million barrels in mandatory commercial inventories. According to him, this combined reserve could cover roughly 124 days of lost supply from the Gulf.
The agency previously released crude oil reserves twice in 2022 after Russia invaded Ukraine. However, that move initially pushed oil prices up by nearly 20%, as traders interpreted the release as a sign that the crisis was more serious than expected.
One of the most notable coordinated releases took place in 1991, when then US President George HW Bush ordered the first-ever drawdown of the Strategic Petroleum Reserve as a US-led coalition launched Operation Desert Storm against Iraq. IEA member countries also released oil from their stockpiles under a coordinated plan prepared ahead of the invasion.
Oil prices fell by more than 20% on the first day of the US-led assault. By the time coalition forces entered Iraq and Kuwait in February, oil from the Strategic Petroleum Reserve had already reached the market.
The IEA was established in 1974 following the Arab Oil Embargo. Western countries created the organisation due to the increasing Iranian attacks on oil tankers travelling through the Strait. It aims to coordinate energy policy and ensure oil supply security during market disruptions.
The agency sets guidelines on the level of crude oil reserves member countries must maintain and coordinates emergency releases to stabilise global markets during crises.
