International energy authorities faced growing pressure on Monday to consider releasing emergency strategic petroleum reserves after the effective closure of the Strait of Hormuz triggered a sharp rise in oil prices and raised fears of sustained supply disruption. With Brent crude surging to 14-month highs and energy analysts warning of potential $100 oil, the case for deploying the buffer stocks that member nations maintain for exactly such emergencies was becoming increasingly compelling.
Strategic petroleum reserves exist precisely for situations like the current crisis. Member nations of the International Energy Agency collectively hold hundreds of millions of barrels of emergency oil reserves, maintained specifically to smooth out supply disruptions and prevent prices from spiralling out of control. Coordinated releases of these reserves have been used in the past during major supply crises, with mixed but generally positive short-term price effects.
However, the current crisis presents some complicating factors for any potential reserve release. The blockade of the Strait of Hormuz means that even if additional supply is released from strategic reserves, getting it to the refineries and distribution networks that need it requires navigating the same logistics challenges that are driving the crisis in the first place. Moving oil from storage locations in North America and Europe to Asian buyers facing the most acute shortfalls requires tanker capacity and viable shipping routes.
Gas markets present an even greater challenge for emergency intervention. There is no equivalent to strategic petroleum reserves for liquefied natural gas. The loss of nearly 20% of global LNG supply from the Qatar shutdown cannot be offset by reserve releases, because no such reserves exist in sufficient volume. Alternative LNG producers — in Australia, the United States, and elsewhere — are already operating at or near capacity, leaving limited room to increase output quickly.
The most immediate practical measure available to policymakers is conservation. Encouraging reduced energy consumption, particularly in non-essential applications, can help to reduce the pressure on tight markets and slow the rate at which prices rise. Several European governments that implemented such measures during the 2022 energy crisis demonstrated that demand reduction can make a meaningful contribution to market stability, even if it falls far short of fully offsetting supply disruptions of the current magnitude.
IEA Under Pressure to Release Emergency Oil Reserves as Hormuz Closes
