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The G7 countries are preparing one of the largest releases of strategic oil reserves in history, as governments rush to rein in a surge in energy prices triggered by the US-Israel war with Iran.
After an emergency meeting on Monday, which came as oil prices soared above $100 a barrel, G7 finance ministers said they “stand ready” to tap stocks of crude oil, petrol and diesel to protect the world economy.
The move, which would be co-ordinated with the International Energy Agency, could be approved as soon as Tuesday, according to people familiar with the discussions, though no final decision has been made.
Fatih Birol, head of the IEA, said there were “significant and growing risks for the market”, adding that conditions had “deteriorated in recent days”.
People close to the talks said some US officials believed that a joint release in the range of 300mn-400mn barrels would be appropriate. That would match or surpass the 300mn jointly released by the US and IEA in 2022 following Russia’s full-scale invasion of Ukraine.
Gulf producers normally responsible for more than 20mn barrels a day of production, or about a fifth of the world’s total demand of almost 105mn b/d, have cut output at fields by varying degrees in recent days, including Saudi Arabia, Iraq, the UAE and Kuwait.
Oil’s gains have accelerated as a result, with traders fearing much of their crude will remain cut off from global markets by Iran’s threats to shipping in the Strait of Hormuz, the narrow chokepoint at the entrance to the Gulf.
Storage tanks are nearing capacity, forcing producers to shut down, though some supplies from Saudi Arabia and the UAE are being rerouted past the Strait.
“In addition to the challenges of transit through the Strait of Hormuz, a substantial amount of oil production has been curtailed,” Birol said, adding that they had discussed “all the available options, including making IEA stocks available”.
S&P Global Energy said the hit to supplies had “the potential to be the largest oil supply disruption in history”.
After a weekend of continued drone and missile strikes across the Middle East, Brent crude jumped as much as 29 per cent when markets re-opened on Monday to reach almost $120 a barrel, hitting bonds and stocks as traders bet the world economy was facing another round of heightened inflation. Oil was trading at about $60 a barrel in early January.
Price gains eased during afternoon trading in London after the G7 meeting, with Brent falling back to $98.80 a barrel, up 6.8 per cent on the day.
US President Donald Trump is facing pressure to tackle the surge in oil prices, particularly ahead of November’s midterm elections in which affordability is expected to be a critical issue for voters.
The average US petrol price rose to $3.478 a gallon on Monday, marking a 16 per cent increase in a week.
US officials had previously said there was no need to draw on strategic petroleum reserves and as recently as Sunday, Trump dismissed concerns about rising prices, saying they would “drop rapidly when the destruction of the Iran nuclear threat is over”.
The US is now fully supportive of a co-ordinated release of strategic reserves, according to people familiar with the situation, and G7 energy ministers are now expected to meet on Tuesday or later this week.
“That is where action would be decided,” said one person familiar with the discussions.
Under the IEA programme, 32 member countries hold about 1.2bn barrels in strategic reserves that can be tapped in an emergency, though this has been done only five times since the agency was founded following the Arab oil crises of the 1970s.
Companies also hold another 600mn of oil stocks that are covered by government obligations, the IEA said.
“Everyone was broadly supportive of the idea — there were no blockers,” said one official who was on the call organised by France and including the US, Japan, Germany, the UK, France, Canada and Italy.
EU economy commissioner Valdis Dombrovskis warned the conflict could have “substantial stagflationary shocks on the global and European economy” if it extended beyond “a couple of weeks”.
“It’s important to work to de-escalate this conflict as soon as possible . . . The sooner it happens, the more contained the impacts on the economy,” Dombrovskis said.
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